The manager of SPH Reit says it is hard to find good assets both locally and overseas, evidenced by the limited number of transactions completed in the market this year.
Leong Horn Kee, chairman of the Reit manager, was asked by shareholders at the Reit’s annual general meeting why it had only purchased a small strip mall like The Rail Mall this year, and whether it plans to ramp up its acquisitions more aggressively.
One shareholder said: “The Reit’s gearing (as at end-August) is 26.3 per cent. I was expecting that we would take a sizable acquisition but we ended up with (The) Rail Mall.”
Dr Leong replied that the manager still actively looks out for assets to acquire but it is challenging to find good-quality, well-located assets at good value with a minimum 6-per-cent yield, similar to that of its two existing malls, Paragon and The Clementi Mall.
“Any new acquisition that we want to look for and buy has to achieve that yield accretiveness of 6 per cent. We have been looking actively and ended up purchasing The Rail Mall because it satisfies our yield requirement… It’s something that we can add value to over the years.”
Susan Leng, chief executive officer of the Reit manager, added that in terms of acquiring assets in Singapore, there are some available ones but of these, not many are retail malls. Even for the handful sold, capitalisation rates are very compressed at about 4 per cent. “Those are sizeable assets but they do not meet our requirement. It would be dilutive for all our unitholders… We should be careful that each time we add an asset, regardless of size, it is yield accretive.”
The Rail Mall is one of four major retail mall transactions in the market this year. The other three were: Sembawang Shopping Centre, sold to a Lian Beng joint venture for S$248 million; a 70-per-cent interest in Westgate sold to CapitaLand Mall Trust for S$789.6 million; and a 50-per-cent interest in Capitol Singapore sold to Perennial Real Estate Holdings for S$528 million.
Dr Leong added that the manager would prefer to acquire assets similar to Paragon and The Clementi Mall because it already has the domain knowledge of how to operate such malls. “That would be the target but to find them would not be that easy. It’s not really a case of what we want, but what people want to sell and at what price.”
Overseas too, the same problems persist and it is hard to find an asset that matches the confluence of factors it considers such as size, location, sustainability, risks and exchange rate.
“We have been working on some possibilities but nothing has come to realisation yet…but we definitely want to grow the asset base of SPH Reit,” he said, adding that he still wants to preserve the steady profile of the trust and will not go into aggressive acquisitions.
In the hour-long session attended mostly by retirees, shareholders also wanted to know when The Seletar Mall would be injected into the Reit.
Dr Leong said the property has gone through one cycle of rental reversion and would likely have to achieve a certain level of stability in occupancy, rental performance and yield before the mall owner Singapore Press Holdings (SPH) would be willing to sell.
When the time comes for SPH, also the parent firm and majority shareholder of SPH Reit, to sell the mall, the Reit would be interested to consider buying it. Decisions made by either the parent company or the Reit must be done independently.
All resolutions, including one to authorise the manager to issue units and make or grant convertible instruments, were passed on Friday.