Frasers REIT Sells Mall in Singapore’s Changi to Mainland Family for $250M

Singapore-listed Frasers Centrepoint Trust is selling a mall near Changi airport for S$338 million ($250 million) to a mainland Chinese family, according to sources who spoke with Mingtiandi.

FCT’s manager told the local bourse on Wednesday that it has entered into a sale and purchase agreement with an unrelated third party to offload Changi City Point, a shopping mall directly connected to the Singapore Expo MRT station. People not involved in the deal identified the buyer of the 208,453 square foot (19,366 square metre) shopping centre as members of a family surnamed Zhao from China’s Guangdong province, which had previously been active in the city-state’s property sector.

The trust’s manager plans to use the net proceeds from the proposed sale, estimated to be S$329.7 million, to repay loans and bring down the gearing of one of Singapore’s biggest suburban mall landlords. The sale comes after FCT in June took on a S$419 million green loan from OCBC intended, in part, to refinance maturing debt and support ongoing renovation projects.

“This divestment is part of our strategic portfolio review to strengthen FCT’s portfolio resilience and is in line with our long-term objective to create value for FCT’s unitholders,” said Richard Ng, chief executive officer of the manager. “[It] will also strengthen FCT’s financial position through the lowering of its aggregate leverage, a reduction in average cost of borrowings… and an improvement in the hedge ratio of fixed-rate loans.”

Value-Add Play

FCT’s manager said the total consideration marks a 4 percent premium to Changi City Point’s S$325 million valuation as of 31 July and will generate an estimated net gain of S$10.9 million once the proposed sale closes by 15 November. The buyer is acquiring the asset at a yield of 4.31 percent on a net property income basis, according to the manager’s statement.

Ng explained that the divestment will allow the Frasers Group-backed REIT to better focus on its core suburban retail strategy. Post-divestment, the trust’s gearing ratio is expected to be trimmed to 37.1 percent from 40.2 percent and it will have reduced its average cost of borrowing to 3.6 percent from 3.7 percent as of 30 June.

He also sees FCT’s portfolio performance improving with committed occupancy rising to 99.3 percent post-deal from 98.7 percent prior to the divestment. The disposal of the shopping centre, which FCT acquired in 2014, is also expected to raise average gross rents in the portfolio by 3.7 percent.

Shaun Poh, executive director of capital markets at Cushman & Wakefield, who acted on behalf of the seller, declined to disclose the buyer’s identity but said the 2011-vintage asset presents a value-add opportunity for its next owner.

While FCT has made a series of enhancements to the property, the buyer is looking to do more to improve the mall, he told Mingtiandi on Wednesday.

“The buyer plans to do some further asset enhancements and some minor reconfiguration to work on the tenant mix to enhance the value of the asset and hopefully to ramp up the revenue,” he said. “It’s something they want to do while they continue to operate the mall.”

The Zhao clan is expanding its portfolio in the Lion City six years after making a splash in 2017 with their en bloc purchase of the Citimac industrial complex in District 13 which it acquired for S$430 million, based on local media reports.

Fitness Regime

Exiting the asset leaves FCT with nine suburban malls in Singapore spanning 2.7 million square feet and valued at S$6.5 billion post-deal.

Located at 5 Changi Business Park Central 1, Changi City Point attracted 7.5 million shoppers last year. The neighbourhood mall comprises three floors and one basement level, housing 128 tenants including supermarket chain FairPrice Finest and Japanese dollar store, Daiso.

The mall booked S$14.57 million in net property income for the fiscal year ending September 2022, which was up 8.4 percent from a year earlier. Changi City Point was 93.7 percent occupied as of 30 September last year, with tenants from the food and beverage sector and the fashion industry contributing 50 percent and 22 percent respectively of the mall’s gross revenue during the fiscal year.

The latest addition to FCT’s portfolio was its 50 percent interest in the 634,630 square foot NEX mall, which it acquired together with its sponsor Frasers Property in January from Mercatus Co-operative Ltd. The joint venture paid S$652.5 million for a half stake in the largest mall in northeast Singapore.

Tourism Rebound

In a separate statement, Cushman & Wakefield’s Poh said investors continued to favour retail assets in Singapore given the positive rental outlook and the relative scarcity of good quality shopping centres in the city-state.

Average rents for prime mall space in Singapore’s suburbs, officially referred to as the Outside Central Region, rose 0.7 percent to S$14.50 per square foot in the second quarter, compared to the first three months of the year, according to a market report by Savills released on Wednesday.

“Market sentiments in the retail sector has (sic) been improving on the back of the tourism recovery,” according to the market report.

Across the city-state, Savills estimates that there will be about 2.7 million square feet of new retail space entering the market from 2023 to 2027. This translates to an average of 547,000 square feet of new supply each year, or roughly half of the 1.1 million square feet of new shops and malls rolled out annually from 2015 through 2019.