SPH Reit sees potential in Aussie acquisition

Singapore

UNITHOLDERS questioned SPH Reit's manager on its plans for the Reit's latest proposed acquisition Down Under at an annual general meeting (AGM) on Wednesday.

In particular, unitholders were keen to find out its strategy for the freehold Westfield Marion Shopping Centre in Adelaide, as well as the rationale behind a private placement to partially fund the acquisition.

Earlier this month, the Reit announced it is planning to acquire a 50 per cent stake in Westfield Marion for A$670 million (S$620.2 million), with the other 50 per cent held by Scentre Group. The deal is expected to be concluded by end-2019.

The largest and only super regional shopping centre in South Australia, it has approximately 1.5 million square feet of gross lettable area (GLA) and sits on a land parcel of some 2.5 million sq ft, situated about 10 kilometres south west of Adelaide's central business district.

Dr Leong Horn Kee, chairman of the Reit manager, said that the Reit is taking a longer term view of the asset.

"We do have plans on how to further redevelop this area, (in the) medium to longer term," Dr Leong said, pointing to the size of the land and the potential for future enhancement.

The acquisition is being financed through a combination of proceeds from the S$300 million of perpetual securities issued on Aug 30, debt as well as a private placement. Post-acquisition, the Reit's gearing will stand at 29.7 per cent.

During the AGM, one unitholder queried the choice for a private placement. Units in the Reit shed three cents to close at S$1.08 last Friday after the Reit announced it had raised S$164.5 million through the private placement. The issue price for the placement was S$1.05 per new unit.

The placement allows the Reit to bring in more shareholders and improve liquidity, given units in the Reit are not very well traded, Dr Leong highlighted. The placement was also priced such that the yield accretion was maintained, he added.

Singapore Press Holdings (SPH) - which owns publications such as The Business Times - holds about a near 70 per cent stake in SPH Reit.

Other assets in SPH Reit's portfolio include a 99-year leasehold interest in Paragon, a 99-year leasehold interest in The Clementi Mall, a 99-year leasehold interest in The Rail Mall and an 85 per cent stake in Figtree Grove Shopping Centre in New South Wales, Australia.

During the hour-long session that was attended by around 175 unitholders, one unitholder questioned the concentrated risk of having Paragon account for so much of the Reit's portfolio and asked if the Reit would consider any mergers and acquisitions (M&A). At S$2.75 billion, Paragon accounts for around three quarters of the S$3.6 billion valuation of the portfolio.

Dr Leong said: "Paragon is one of our mainstays. We put a lot of focus on Paragon, making sure it is well-managed and well-maintained. We continue to look at asset enhancement initiatives there."

He also highlighted that SPH Reit has been diversifying by acquiring The Rail Mall, Figtree Grove Shopping Centre and now, Westfield Marion Shopping Centre.

Responding to a question on whether the lease for The Rail Mall could be topped up, chief executive officer of the Reit manager, Susan Leng, said that typically it would engage the authorities about 10 years away from the lease expiry. The mall has around 27 years left on the lease.

She also pointed out that even without a top-up to the lease, the asset is still yield accretive to unitholders.

One unitholder also broached the possibility of The Seletar Mall being injected into the Reit, a question which has come up before. The Seletar Mall is owned by SPH.

The timing and pricing of a sale of The Seletar Mall would have to suit SPH's own corporate objectives, the Reit's management highlighted. "When the time comes that they are prepared to sell, we are prepared to look at it. We have to assess it based on our constitution," Dr Leong said.

All three resolutions, including one authorising the manager to issue units and to make or grant convertible instruments, were passed on Wednesday.

Units of SPH Reit closed S$1.09 on Wednesday, up one cent.