SPH Reit to take stake in second Australian mall for A$670 million

SPH Reit plans to take a half-stake in a shopping centre Down Under for A$670 million (S$627.9 million), to be funded by proceeds from a recent perp issue plus debt and/or equity fund-raising, in a deal with Lendlease Real Estate Investments inked on Thursday.

The manager, which in December 2018 bought a majority interest in a New South Wales mall, said that the latest transaction involving the 1.5 million square feet Westfield Marion Shopping Centre "deepens strategic presence in Australia with entry into attractive and stable Adelaide market".

Freehold Westfield Marion, billed as "the only super-regional shopping centre" in the state of South Australia, has three storeys of retail space and five office floors, with 5,270 parking lots.

The mall, which is next to Oaklands Train Station, is about 10 kilometres away from the central business district of state capital Adelaide, while its anchor tenants include department stores David Jones, Myer, and Harris Scarfe, and supermarkets Aldi, Coles, and Woolworths.

On a pro forma basis, the transaction would have upped full-year distribution per unit from 5.6 Singapore cents to 5.69 Singapore cents if it were done on Sept 1, 2018, SPH Reit's manager said.

It said that it planned to pay for the Westfield Marion deal with a mix of proceeds from the August 2019 issuance of S$300 million of perpetual securities, as well as debt and/or equity fund-raising, with a decision on the timing and share of funding yet to be made.

The manager will also arrange a bridging loan facility that can be drawn upon to fully fund the acquisition if need be, it added.

The price tag, reached on a willing buyer, willing seller basis, took into account an independent valuation of the half-stake ( see amendment note) in Westfield Marion at A$679.5 million.

According to the manager's bourse filing, the transaction will increase SPH Reit's portfolio weighted average lease expiry, by net lettable area, to 5.1 years, up from 3.2 years as at Aug 31, 2019.

Also, Australian assets would make up 19.7 per cent of the Reit's portfolio value, up from 5.3 per cent before. SPH Reit already owns an 85 per cent stake in Figtree Grove Shopping Centre in Wollongong, New South Wales, and interests in three Singapore properties.

Under the deal, SPH Reit will enter a joint venture partnership with retail real estate investment trust Scentre Group, which owns and runs Westfield malls in Australia and New Zealand.

"The acquisition will enhance the sustainability and resilience of SPH Reit's returns to unit holders through the increased geographic diversity, larger freehold land tenure, and longer underlying leases with embedded rental growth potential," said Susan Leng, chief executive of the manager.

The counter shed S$0.01, or 0.87 per cent, to S$1.14, before the announcement.

Amendment note: The manager of SPH Reit initially stated that the independent valuation of Westfield Marion was A$679.5 million. It has since clarified that the valuation applies to the 50 per cent interest. The article has been amended to reflect this update.