Link REIT, Frasers Vie for $2B Singapore Mall Portfolio as Headwinds Build

A tender for a set of Singapore malls is down to two contenders, with SGX-listed Frasers Property and Hong Kong’s Link REIT battling it out for the assets belonging to Mercatus Co-operative, in what would be the city’s biggest property deal this year.

The two contenders are now in the running for three retail properties worth an estimated S$3 billion ($2.11 billion), according to sources familiar with the discussions, after the property investment arm of NTUC Enterprise Co-operative dropped one of four malls from the original, S$4.15 billion portfolio.

With rising interest rates undermining investors’ buying power, sources confirmed to Mingtiandi that Mercatus dropped the 320,000 square foot AMK Hub in Ang Mo Kio from the planned asset sale, slashing the total value of the portfolio by roughly 25 percent from when JP Morgan marketing the assets in June.

With the portfolio pared from four down to three properties, Mercatus is now choosing between the SGX-listed developer and Asia’s largest REIT as it seeks to shed its real estate holdings.

The property firm is marketing the pared down portfolio as part of an effort by NTUC to downsize its property holdings, however, the transaction’s fate remains uncertain with analysts pointing to challenges to mega-transactions as investors struggle with intensifying market headwinds.

AMK Hub Out

For Derek Tan, head of property research in Singapore at DBS Group, rising borrowing costs pose a challenge for potential buyers and could force Mercatus to delay the sale if it wants to achieve its target valuation.

“Given where base rates are, it’s really hard to make it an accretive deal so maybe a “winners’ curse” will ensue… if Mercatus decides to award to either of two parties,” Tan said on Tuesday in response to queries from Mingtiandi. “Anyway, Mercatus may also delay the sale to another time so that they can get “best price” out of this portfolio.”

Four months after the tender was launched, the remaining assets in the portfolio are Jurong Point, NEX and Swing By @ Thomson Plaza suburban shopping malls. Based on Mercatus’ 2021 annual report, the three assets are at least 98 percent occupied and generated S$267 million in total revenues last year, which was down 3.2 percent from pre-pandemic level in 2019.

Jurong Point, a shopping centre in the western region is the biggest property of the bunch at 720,000 square feet of net lettable area and a valuation of S$2 billion as of end-2021. It is followed by the S$1.96-billion NEX mall in Serangoon district, wherein Mercatus maintains a 50 percent stake alongside partners PGIM Real Estate, Chinese sovereign wealth fund CIC and a subsidiary of US giant Prudential Financial.

Also in the portfolio is Swing By @ Thomson Plaza which spans 110,000 square feet in NLA and was valued at S$203 million.

Mingtiandi understands the properties are among the top five suburban malls in terms of shopper traffic in the city-state, and are projected to post 2 to 4 percent rental growth in 2023.

In an August report, DBS Research pointed to Link REIT, Frasers and CapitaLand Integrated Commercial Trust (CICT) as the most likely bidders to take over the massive retail portfolio.

The research note picked CICT as the “strongest contender” among local retail investors, but the REIT is understood to no longer be in the picture. CICT representatives did not immediately respond to requests to comment from Mingtiandi.

Representatives of Mercatus and Link REIT declined to comment on the story, while Frasers also did not respond by the time of publication.

Holding onto Offices

Mercatus is moving forward with its mall tender as it seeks to sell down the majority of its S$5.6 billion commercial property portfolio.

In September, the NTUC unit reportedly hired JP Morgan to look for a potential buyer of its 33.3 percent share in an office tower in Sydney, a little over a year after acquiring the share alongside local asset manager Dexus.

While busy marketing its piece in the A$1.14 billion ($790 million) 1 Bligh commercial complex, Mercatus continues to hold onto the 7.6 percent stake it has in Brookfield Place – a  27-storey office tower within a 10 minute walking distance from 1 Bligh, as well as its One Marina Boulevard property in Singapore’s downtown core — which serves as headquarters for the property manager and its parent, NTUC Enterprise.

In July, the group’s insurance division, NTUC Income, sold 16 Collyer Quay to Bright Ruby Resources, an investment firm controlled by Chinese billionaire Du Shuanghua, for S$1 billion.

Suburban Malls Outperform

The mall sale is supported by a recovering shopping environment in Southeast Asia’s wealthiest city.

Singapore’s retail property market is likely to have a “sustainable recovery,” according to a report by Knight Frank this month, which pointed to a rising volume of tourist arrivals in the city and a steady recovery from the pandemic.

The report showed average gross rent in suburban malls went up by 1.6 percent in the third quarter to S$25.80 per square foot versus the preceding three months — a growth rate slightly above the 1.5 percent quarterly increase seen across the city.

“The retail sector has regained its momentum with the resumption of large-scale events, a return to the workplace and normalisation of activities,” Knight Frank retail head Ethan Hsu said. “However, recovery remains delicate and requires several more quarters without disruption for growth to be entrenched.”