Frasers Centrepoint Trust (SGX: J69U), or FCT, is on the acquisition trail again.
The retail REIT announced the acquisition of Northpoint City’s South Wing for S$1.17 billion from its sponsor Frasers Property Limited (SGX: TQ5) to increase its exposure to the largest mall in the northern part of Singapore.
The purchase will be funded by an equity fundraising exercise which comprises a private placement, a preferential offer, debt financing, and the potential issuance of subordinated perpetual securities.
The last acquisition conducted by FCT was to raise its stake in NEX Mall from 25.5% to 50% back in early 2024.
Let’s dig further into this billion-dollar acquisition – here are five things that investors should know about.
The largest prime suburban mall in the northern region
Northpoint City is the largest prime suburban mall in the northern part of Singapore.
The mall not only enjoys full occupancy, but boasts the highest shopper traffic among the properties within FCT’s existing portfolio.
Shopper traffic grew at a 9.6% compound annual growth rate (CAGR) from 2020 to 2024.
The mall has a net lettable area (NLA) of 301,579 square feet and has 89 years remaining on its 99-year leasehold tenure.
FCT acquired the South Wing at a net property income (NPI) yield of 4.5%, and the mall’s NPI CAGR between 2020 to 2024 stood at 8%.
Unlocking multiple potential growth avenues
A big benefit of this acquisition is that FCT’s manager can consolidate both the North and South Wings of Northpoint City.
With full ownership of the entire mall, the REIT can execute holistic asset enhancement initiatives (AEIs) to create additional NLA.
By removing secondary corridors and converting non-commercial gross floor area (GFA) to prime rental-yielding NLA, the REIT can increase rental income organically by creating an additional 8,000 square feet of NLA.
In addition, trade clustering can be improved which will result in higher potential rental yields and attract a higher level of footfall.
Another area is cost savings.
FCT intends to consolidate the common mechanical and engineering systems across both wings to optimise operating efficiency and help reduce operating expenses.
With these enhancements and cost reductions, the manager believes it can improve Northpoint City’s NPI margin from the current 72.7% to 74.2%.
A boost from new developments and an influx of residential supply
The north region of Singapore will see new developments in the years ahead.
Some of these include the Woodlands Regional Centre and Agri-Food Innovation Park.
Meanwhile, transport nodes will also be enhanced with the North-South Corridor and the completion of the Johor Bahru-Singapore Rapid Transit System (RTS).
These developments should result in higher human traffic flow as the residential population increases.
In addition, new residential units and amenities will boost the population in the north, helping to increase overall shopper footfall and spending.
The existing resident population (based on an independent market report) stood at around 516,000.
This population is projected to increase to 609,000 (+18%) by 2031.
Solidifies FCT’s position as the #1 suburban retail landlord
With this acquisition, FCT becomes the market leader in the suburban retail space.
Post-acquisition, FCT will have a 10.3% market share of the private shopping centres by NLA, with CapitaLand Integrated Commercial Trust (SGX: C38U) coming in a close second at 8.6%.
FCT’s ability to attract and retain tenants will increase as it solidifies its dominant position in Singapore’s retail scene.
DPU-accretive transaction
Based on the fundraising parameters set out above, FCT’s acquisition will be accretive to its distribution per unit (DPU).
Based on fiscal 2024’s DPU of S$0.12042, pro-forma DPU will rise by 2% to S$0.1228.
Aggregate leverage will increase from the current 38.5% to 39.8%, an increase of 1.3 percentage points.
At FCT’s closing unit price of S$2.21, the enlarged DPU represents a forward distribution yield of 5.6%.
Get Smart: An EGM and fundraising exercise
FCT’s purchase of Northpoint City’s South Wing needs to be approved by unitholders at an extraordinary general meeting (EGM) convened at a later date.
In the meantime, the REIT is undertaking a fundraising exercise in the form of a private and preferential offer of shares to raise around S$400 million.
The private placement will be priced between S$2.07 and S$2.113 per unit while the preferential offer will be priced between S$2.03 and S$2.07 per unit.
Both these price ranges are a discount to the volume-weighted average price of S$2.2136 per unit.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.
