Frasers Sells Half of S$1.1B Mall to Thai Cousin at Mark-Up Amid Retail Slump

Despite slumping retail sales, a division of tycoon Charoen Sirivadhanabhakdi’s TCC Group has agreed to purchase half of a suburban Singapore shopping centre from Frasers Property, the SGX-listed developer controlled by the Thai billionaire.

TCC Prosperity’s purchase of the south wing of the Northpoint City shopping complex values the 290,206 square foot (26,961 square metre) property at S$1.1 billion ($791 million), Frasers said in a statement late Tuesday.

The Thai firm’s investment in the retail asset in the northern suburb of Yishun provides a much needed shot in the arm for Frasers Property’s Singapore shopping mall empire after retail sales in the city plunged 52 percent in May, compared to the same month a year earlier, the biggest decline since 1986.

The transaction values the 2017-vintage mall at S$3,785 per square foot of net lettable area, which based on publicly available information, is the highest transaction price on a unit area basis achieved for a suburban retail mall in Singapore in recent years.

Selling High When the Market is Low

“This transaction is timely as it maintains the group’s discipline in optimising capital productivity,” said Low Chee Wah, chief executive officer of Frasers Property Retail, which manages the company’s Singapore retail assets. “Amid challenges brought about by COVID-19, we are pleased to have the support of TCC as our strategic capital partner for this transaction.”

Frasers said it will book an extraordinary gain of S$50 million from the transaction, with TCC paying a 4.5 percent premium to the south wing’s book value of S$1.05 billion as of September 2019.

Khun Charoen’s Thai firm was willing to pay that markup despite the chairman’s son, Panote Sirivadhanabhakdi, who serves as CEO of Frasers Property, warning in an April announcement that, “Along with industry peers, we are facing an uncertain environment that impacts our business performance and inevitably, revenue and earnings.”

That statement came one day after Singapore’s government on 7 April unveiled its “Circuit Breaker” measures which kept most retail establishments closed through late June.

Proceeds from the deal will help Frasers reduce its net gearing, which stood at 1.068 times as of March this year, the company said.

Beer to Property Tycoon

Khun Charoen, Thailand’s third richest person according to Forbes and chairman of Frasers Property, took control of the Singapore-based real estate group in 2013 as the Bangkok-based brewer of Chang beer expanded his holdings regionally. Through Frasers and other companies in his property holdings the 76-year-old and his family control a property empire that spans Australia, China, Singapore, Thailand, the United Kingdom and Vietnam.

In the past two years, Frasers Property has been among the most active buyers of retail assets in Singapore.

In 2019, before the COVID-19 pandemic ravaged the global economy, the company, along with Frasers Centrepoint Trust, a REIT managed by a unit of the Singapore-listed developer took control of a portfolio of five shopping malls and an office building when it built its stake in a PGIM-managed retail fund through a series of transactions which cost the company a total of S$991 million. That acquisition boosted Frasers’ retail portfolio to 14 properties in the city-state and deepened the group’s exposure in suburban malls, which the company considers a resilient asset class. Last month Frasers Centrepoint Trust spent S$197.2 million to acquire an additional 12.07 per cent stake in the PGIM Real Estate Asia Retail Fund.

“Taking a longer-term perspective, suburban retail space is limited in supply in Singapore and the long-term fundamentals of Singapore suburban retail remain intact,” Frasers said in a statement to Mingtiandi. “Northpoint City, like many of the malls in our portfolio, is well located with great connectivity to transportation node and a large residential catchment.”

Frasers, which manages S$8.6 billion of retail assets in Singapore, developed Northpoint City’s south wing as part of a mixed-used development that integrates the new shopping mall into the older north wing, which was constructed in the 1990s, as well as the Yishun bus interchange and the nearby MRT station.

Fighting Off E-Commerce

Before the advent of the coronavirus, the shopping mall’s valuation had declined over the past two years amid increasing competition from e-commerce, with the value of the south wing sliding from the S$1.12 billion level it had enjoyed in September 2018, according to Frasers’ website.

Like most shopping malls in Singapore, Northpoint City, has had to grapple with the growth of online shopping, which has taken a still larger share of consumer spending as Singaporeans forced to stay home to curb the COVID-19 pandemic turned to online shopping and food deliveries.

Following the stake sale, Frasers Property Retail will continue to manage Northpoint City, aiming to enhance the group’s long-term return by increasing asset and property management fee income. “We look forward to working with TCC to lift the asset’s value over time,” Low said.

Singapore shopping malls are among the hardest hit by the COVID-19 pandemic. Average rents for retail space in the city’s central region declined 2.3 percent in the first three months of the year, compared to the previous quarter, according to a report released by the government in April.

With occupancy levels at Northpoint City above 93 percent, Frasers remains optimistic about the outlook for the retail market in the long run. “The pace of the retail market recovery to normalcy will not be immediate and we will have to closely monitor the situation, while being cognisant of evolving consumers behaviours,” the company said.