SPH REIT to acquire 50% stake interest in Adelaide shopping centre

Image credit: Westfield Marion FB

SPH REIT Management Pte Ltd said that in its capacity as the manager of SPH REIT, it is pleased to announce that Marion Sub Trust (which is wholly owned by SPH REIT) has today entered into a Sale of Land Contract with an unrelated third party, Lendlease Real Estate Investments Limited to acquire a direct 50.0% interest in the Westfield Marion Shopping Centre for a purchase consideration of A$670.0 million (approximately S$636.5 million).

The Acquisition is expected to be completed by end 2019. Moelis Australia Funds Management Pty Ltd, a subsidiary of Moelis Australia Limited (“Moelis Australia”), has been appointed as investment manager for the Marion Sub Trust.

Scentre Group Limited (“Scentre Group”) is the current co-owner of Westfield Marion and will be SPH REIT’s joint venture partner post completion of the acquisition. Scentre Group is the largest Australian Retail REIT, owning and operating Westfield in Australia and New Zealand with interests in 41 Living Centres, encompassing approximately 11,500 outlets and total assets under management of A$54.6 billion.

Westfield Marion is the largest and the only super regional shopping centre in South Australia, with approximately 1.5 million sq ft of Gross Lettable Area (“GLA”). The freehold property which sits on a land parcel of approximately 2.5 million sq ft, is strategically located approximately 10.0 kilometres south west of Adelaide’s Central Business District “CBD”).

With its large offerings and well segmented precincts of entertainment, fresh food, and dining, Westfield Marion is able to attract a footfall of 13.5 million annual visitors. Westfield Marion boasts a healthy occupancy of 99.3% (by GLA) and a well-distributed Weighted Average Lease Expiry (“WALE”) of 6.7 years (by GLA) and 4.2 years (by income), supported by a high quality tenant base including leading national retailers like David Jones, Myer, Harris Scarfe, Target, Kmart, Big W, Bunnings Warehouse, Coles, Woolworths, Aldi and Events.

Westfield Marion is located in a highly accessible location which is bound by three major thoroughfares and arterial roads in Diagonal Road, Sturt Road and Morphett Road, extending greater access to shoppers beyond its usual catchment. Westfield Marion is also located next to the Oaklands Train Station, connecting it with Adelaide’s CBD and the southern coastline via multiple train lines.

Acquisition in line with the strategy of SPH REIT

“We are very pleased to welcome SPH REIT as our joint venture partner at Westfield Marion,” said Scentre Group Chief Executive Officer Peter Allen. “Westfield Marion is the market leading Living Centre in South Australia with long-term development potential. With the confirmation of SPH REIT as our JV partner, we look forward to progressing plans for the next stage of the centre’s development.”

The Acquisition is in line with SPH REIT’s strategy of acquiring retail properties in Asia Pacific that complement its existing portfolio of quality assets. It will provide unit holders of SPH REIT with regular and stable distributions, sustainable long-term growth in distributable income and distribution per unit, while maintaining an appropriate capital structure.

Image credit: Westfield Marion FB

Ms Susan Leng Mee Yin, Chief Executive Officer of SPH REIT Management Ltd., as manager of SPH REIT, said, “The Acquisition deepens SPH REIT’s presence in the Australian market and follows on from our first asset acquisition of Figtree Grove Shopping Centre in December 2018. The Acquisition will enhance the sustainability and resilience of SPH REIT’s returns to unitholders through the increased geographic diversity, larger freehold land tenure, and longer underlying leases with embedded rental growth potential.

This transaction and our co-ownership with Scentre Group marks another significant milestone in expanding our presence in a country and sector with growth prospects. We are pleased with this opportunity to partner Scentre Group, the premier developer and operator of Westfield Shopping Centres in Australia, as well as to strengthen our existing relationship with Moelis Australia.”

SPH Reit’s sponsor, Singapore Press Holdings, publishes several mainstream newspapers in Singapore including The Straits Times and Business Times.

A recent report by OCBC said that as its media business in FY19 was a drag on results, and with a weak macro backdrop likely to continue to weigh on its advertisement revenue moving forward, it is relying more on property for income diversification.

The report noted that SPH has made some strides in media business with its digital push and income diversification strategy, as shown by its latest acquisition of UK student accommodation assets, but its Singapore residential property exposure in Bidadari still remains a source of potential headwind.

In its investment summary OCBC said:

Under expectations – SPH’s FY19 results came in below our expectations. The group’s operating revenue was down 2.4% YoY to S$959.3m, bolstered by revenue contribution from its Purpose-Built Student Accommodation (PBSA) portfolio, SPH REIT’s Figtree Grove and Rail Mall, which helped to offset declines in its media revenue.

The group’s newspaper ad revenue YoY decline has increased from 12.4% in FY18 to 13.9% in FY19, owing to notable weakness in the Classified segment. PATMI was down 23.4% YoY to S$213.2m, due largely to the lack of investment income, following the previous divestment of the group’s Treasury & Investment portfolio. Adjusting for exceptional and one-off items, core PATMI came in at S$155.2m, comprising 96.5% of our full-year forecast. The group has declared a final and special DPS of 5.5 S-cents and 1S-cents, bringing the full-year DPS to 12 S-cents.

Relying on property moving forward – SPH has also announced that it will be looking to streamline its media sales capabilities, with around 5% reduction in staff numbers across the Media Group. We expect modest net cost savings in FY20, given that the group will be incurring ~S$8m in retrenchment cost in 1QFY20. Moving forward, we believe the group will continue to be on the lookout for more PBSA assets, building on its portfolio AUM of more than S$600m though we note that cap rates for such assets in the UK have been compressing.

The group has also partnered a Japanese asset manager to set up a fund focusing on aged care and healthcare assets in Japan; SPH will be contributing up to S$50m in seed equity. Separately, we note that Woodleigh Residences is 20% sold as at 31 Aug, with an ASP of ~S$1.9k psf. In our view, the group’s media business outlook remains challenging, and we believe it is still too early to call the bottom on this segment. We roll forward our valuations and reduce our FV slightly from S$2.29 to S$2.28.”

Written by Ravi Chandran

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