Link REIT Buying Mercatus Malls for $1.6B in Singapore’s Biggest Deal of 2022

Hong Kong’s Link REIT is entering Singapore with a bang as it records the city’s largest real estate acquisition this year with a S$2.16 billion ($1.6 billion) purchase of a pair of suburban malls from Mercatus Co-operative Ltd, according to a bourse filing late Wednesday.

Asia’s largest REIT by market cap has entered into sale and purchase agreements to buy Jurong Point shopping centre in western Singapore, and Swing By @ Thomson Plaza, a section of the Thomson Plaza mall in the Upper Thomson area, from the property investment arm of NTUC Enterprise Co-operative at a 6.1 percent discount from their combined appraised values.

“The acquisition of Jurong Point and Thomson Plaza presents an exciting opportunity for Link to build its presence in Singapore, a robust economy with domestic price stability that is conducive to sustained growth,” Nicholas Allen, the trust’s chairman, said in the statement. “This is firmly aligned with our growth strategy to diversify and improve our portfolio mix across geographies and follows recent investments by Link in the region.”

Link REIT is acquiring the two malls after around six months of closely-watched bidding for Mercatus’ S$4.15 billion portfolio of four shopping centres, with the real estate investment division of local trade union organisation NTUC Enterprise retaining the remaining two assets as rising interest rates trim investor buying power.

More Deals to Come

In announcing its first foray into Singapore, Link REIT also declared its intention to build a lasting presence in the Little Red Dot with other deals likely to appear on the horizon.

“Properties such as these, sizable suburban retail assets with high occupancy rates and stable rents, are traditionally tightly held and do not often come to market,” Link REIT chief executive officer George Hongchoy said. “This transaction allows us to build a dedicated team in Singapore and provides a base for Link to expand further into other asset classes and strategies in Asia Pacific.”

The trust is paying S$1.99 billion, or the equivalent of S$2,764 per square foot of net lettable area, for the 720,000 square foot (66,890 square metre) Jurong Point property, with that price representing a 5.6 percent markdown from the asset’s S$2.1 million appraised value as of 28 December.

The property forms part of the Boon Lay Integrated Public Transport Hub, which also includes the Boon Lay Bus Interchange and Boon Lay MRT station, which is proposed to become an interchange with the Jurong Region Line when it opens in 2027.

For Thomson Plaza, which is directly connected to Upper Thomson MRT station, Link REIT is shelling out S$172.53 million, or about S$1,568 per square foot of its 110,000 square feet of leasable space. That price represents an 11 percent discount from the S$194 million latest appraised value of the asset.

From January through October the two assets generated a combined S$88.21 million in net rental income after tax, which was equivalent to 92 percent of their S$95.5 million rental income for the full year of 2021. The two malls have weighted average lease expiry terms of around two years, with lease agreements accounting for 85 percent of their gross rent set to expire by 2025.

Buying in the Off-Season

Link REIT is making its debut in Singapore as rising interest rates have slowed deals around the region, with analysts pointing to the mega-deal as a sign of investor confidence in the local market and the value of the city-state’s reputation as a safe haven.

“Link REIT is taking a long term view in Singapore in line with its long term global expansion, considering the city’s safe haven status,” said Ting Lim, head of capital markets for JLL in Singapore.

Prior to Link REIT’s announcement, Singapore’s largest real estate deal of this year had been Lendlease Global Commercial REIT’s $1.54 billion purchase of Jem, a suburban mall and office complex in Jurong East from private Lendlease funds in February.

Then in March, CapitaLand Investment sold 79 Robinson Road (now CapitaSky) to CapitaLand Integrated Commercial Trust (CICT) and a private fund under its own management for $930 million.

In July, China’s Bright Ruby Resources acquired 16 Collyer Quay at Raffles Place from NTUC Income for around $717 million, as reported by Mingtiandi at the time.

Link REIT’s manager said it is exploring the possibility of bringing in partners to co-invest in its new assets, potentially before the close of the transaction, which is expected to take place by 31 March. To fund the acquisition, the trust is tapping both internal cash resources and debt facilities,

Law firms Rajah & Tann and Allen & Gledhill are understood to have acted for Link REIT and Mercatus respectively in the discussions.

Mercatus Explores Options

Mercatus has secured a new owner for half of its mall portfolio a half-year after it began marketing the four properties.

“The divestment will allow us to unlock some value and redeploy capital to specific areas where we can make a difference in the lives of families in Singapore in a more direct and meaningful way, such as by scaling services in healthcare and education,” said Seah Kian Peng, deputy chairman of Mercatus and group CEO of its parent company, NTUC Enterprise, in a separate statement.

The tender garnered attention from major fund managers before the field was narrowed to three finalists – CapitaLand Integrated Commercial Trust, Frasers Property and Link REIT – following the submission of initial, non-binding bids at the end of July.

With funding costs rising globally, however, the tender was scaled back to three assets in October before the two-property transaction was announced on Wednesday.

With Link REIT having selected its pair of prizes, Mercatus will retain the 320,000 square foot AMK Hub in Ang Mo Kio, which had originally been included in the tender, as well as the 50 percent stake it holds in the seven-storey NEX mall in Serangoon district. The company also owns the 31-storey One Marina Boulevard skyscraper in the downtown core, which serves as headquarters for Mercatus and NTUC Enterprise.

As part of the transaction, Link REIT has agreed to take over asset and property manager duties for AMK Hub at “market fee levels”. The deal also includes a commitment by Link REIT to retain the existing staff to manage Jurong Point and Thomson Plaza.

“While Mercatus continues to own the rest of the assets in our portfolio (such as NEX), we continue to explore strategic options for these assets,” a Mercatus spokesperson told Mingtiandi. “There is no certainty or assurance that there will be a transaction pertaining to the remaining assets.”