ST : Clementi Mall a potential shopping hub

Nov 18, 2009

Clementi Mall a potential shopping hub

Bullish bid attributed to its ability to generate recurring income: SPH

By Jessica Cheam

CLEMENTI Mall's potential as a busy shopping hub and its ability to generate recurring income were key reasons for the bullish bid from Singapore Press Holdings (SPH) and its joint venture partners.

SPH chief executive Alan Chan told a briefing yesterday that the team behind the winning $541.9 million tender based its bid on rents the mall could achieve beyond the first rental cycle.

Mr Chan said the bidding team was confident of achieving rents of top suburban malls and that the mall will enjoy capital appreciation similar to other retail properties in land-scarce Singapore.

'Due to scarcity of land and growing population, prospect for capital appreciation is positive,' he added.

Times Properties owns 60 per cent of the joint venture CM Domain; NTUC Income and NTUC FairPrice hold 20 per cent stakes. The Housing Board awarded the shopping centre site to it yesterday.

Some analysts were taken aback when bids for the tender of the 99-year leasehold mall at the junction of Commonwealth Avenue West and Clementi Avenue 3 were revealed last week.

CM Domain's bullish offer was nearly 42 per cent above the second-highest bid of $382 million from a joint venture between Keppel Land's Alpha Investment Partners and Guthrie.

SPH shares reacted by sliding 3.9 per cent the next day, but have since regained some ground. The company noted that the value of its Paragon investment in Orchard Road had increased at a compounded annual growth rate of 8 per cent since it was acquired in 1997. Some market watchers at the time had thought that the price paid for the shopping mall in Orchard Road was on the high side.

Mr Chan said that Clementi Mall has 'a unique opportunity to be the anchor attraction' in the area, adding that already '300 interested tenants have registered their interest'. SPH was also on the lookout for recurrent revenue streams and felt this was a great opportunity. The company is confident of achieving similar yields as those achieved by the top suburban malls and aims to open the mall by the first half of 2011.

Mr Chan clarified that the total cost of the mall would come under $3,000 psf of retail net floor area - less than analyst estimates - as the fit-out will be less than $40 million, subject to final negotiations with contractors. CM Domain needs to fit out the mall as the HDB is building only the shell structure. HDB will hand over the structure by next August.

An SPH statement also released yesterday said the offer price was 'arrived at after considering the economic potential of the property based on stabilised operations after rental renewal cycle and enhancing yield over time'. It said that factors such as the expected net lettable area, rental rates and property yields, market positioning and trade and tenant mix were taken into account.

Chesterton Suntec International's research and consultancy director Colin Tan said yesterday the bids by other players in the market show that they were perhaps not as optimistic.

The joint venture's cash-rich partners also likely had allowed it to bid so bullishly, he added.

Ngee Ann Polytechnic real estate lecturer Nicholas Mak noted that it was usual for bidders to bid on a property's potential. 'If someone sees a gem stone in the rough, they could bid bullishly for it as they see the potential,' he said. 'If the mall can achieve 5 to 6 per cent net yield, it's pretty decent.'

He pointed out that the mall does not have immediate competition and will have a large catchment of shoppers from the Holland, Bukit Timah and West Coast areas. The site, which has direct links to the Clementi MRT station, is part of a larger HDB project comprising two 40-storey blocks of flats, a carpark, roof garden and a bus interchange. The mall will occupy basement one, the third and fourth levels and part of the fifth floor. Total gross floor area is about 25,000 sq m while the net floor area is up to 18,000 sq m.

Mr Chan said the mall will be driven by a strong retail team from SPH, NTUC FairPrice and Income - all with a proven track record in suburban malls.

The purchase will be financed through internal funds with gearing for yield enhancement, and will not have an impact on dividends, he said.

SPH shares closed two cents down at $3.77 yesterday.

jcheam@sph.com.sg