Frasers Centrepoint Trust - DBS Research 2023-08-31: Changi City Point Divestment Gives 2 Bangs For A Buck

• Frasers Centrepoint Trust announced the divestment of Changi City Point for S$338m, at 4% above the latest valuation of the asset at S$325m. This translates to an NPI exit yield of ~4.31% (FY22 basis, ~4.5% based on FY23F estimates), above Frasers Centrepoint Trust’s purchase price at S$305m. Buyer is a foreign entity with real estate presence within Singapore, including retail assets.
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• Proceeds to be used to pare down debt from 40.2% to 37.1% post-completion to improve Frasers Centrepoint Trust’s financial positioning. Fixed hedge ratio to increase from 63-73% while cost of borrowing will decline from 3.7% to 3.6%.
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Our thoughts on the Changi City Point divestment

Parting with one of the smaller-scale malls within the portfolio.

• Changi City Point has historically been a smaller-scale asset within Frasers Centrepoint Trust’s portfolio, with importance within the portfolio giving way to larger assets that were added to the portfolio over time (Waterway Point, PGIM portfolio, and a ~24.5% stake in NEX mall). Post-Frasers Centrepoint Trust’s portfolio rejuvenation journey, the asset makes up just ~7% contribution to top-line revenue (1H23).
• Structurally, the positioning of Changi City Point has been under pressure since the opening of Jewel mall in mid-2019, which has a larger footprint and has been able to draw more traffic to the mall. Moreover, traffic flow has also been impacted by the extended hybrid work arrangement amongst workers in Changi business park precinct it serves, with MICE events in Expo still below full recovery, impacting overall sales momentum.
• In response, Frasers Centrepoint Trust has shifted positioning of the mall to an outlet retail mall in order to appeal to value-hunters, with COACH opening its flagship outlet store in the mall.
• We note that revenue and NPI (net property income) continue to be below 2019 levels due to these structural factors, with 1H23 performance reflecting a ~91%/~92% recovery in gross revenue and NPI, with FY22 traffic flow at ~54% of FY19 levels, below the portfolio average.

Exit yield an attractive ~4.3% in consideration of shorter land lease tenure.

• Read more at SGinvestors.io.

Geraldine WONG DBS Group Research | Derek TAN DBS Research | https://www.dbs.com/insightsdirect/ 2023-08-31 SGinvestors.io

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