Friday, October 23, 2009

Straits Times: 22 Sim Lim Sq units bought from single seller for $35 million

23 Oct, 2009
22 Sim Lim Square units bought from single seller for $35 million
Deal a sign of recovery in investment sales
By Jessica Cheam

A LISTED property company has snapped up 22 shop units in computer products mall Sim Lim Square for $35 million.

Second Chance Properties (SCP) said yesterday that it had bought the units, all on the fifth floor, from a single seller. They comprise a total of 9,604 sq ft of retail space.

Industry observers say the deal reflects the pace of investment sales, which has picked up recently on the back of a recovering economy and a booming property market.

Small strata-titled shops in thriving malls are proving to be resilient investments despite the downturn.

SCP chief executive Mohamed Salleh said the firm had stopped expanding its property and retail arm last year due to the crisis, but 'now that we see the recovery happening, we are confident enough and have started to expand again'.

The 22 units are tenanted to 27 retailers and command a gross annual rental income of $2.634 million - which works out to a rental yield of 7.3 per cent.

After tax and other costs, net yield from the shops is 6.46 per cent, said Mr Salleh.

'This is very attractive, considering that for other property types, you don't see rental yields this high,' he added.

Mr Salleh was not concerned about the units being on the fifth floor as 'shopper traffic is still high on these levels'.

A back-of-the- envelope calculation showed that the monthly rent that SCP is getting out of its Sim Lim Square shops is $22.85 per sq ft.

This is comparable to the average rent for prime upper-storey retail space in Orchard Road.

In malls, first-floor shops typically command the highest rents due to their exposure to shopper traffic.

Credo Real Estate managing director Karamjit Singh said that from a rental point of view, retail and industrial properties usually give the best yield out of all property segments.

'This is especially so for malls where business is thriving, such as Sim Lim Square. It's quite an attractive proposition, especially given the current low interest rates environment, ' he said.

Rental yields from office or residential properties are typically lower. Also, the retail market is not as erratic.

'Values and rent are more stable and can hold even during a downturn, especially when retailers are doing reasonably good business,' said Mr Singh.

Ngee Ann Polytechnic real estate lecturer Nicholas Mak said the SCP sale also indicated that 'developers and investors are now starting to acquire to position themselves for the expected upturn next year'.

SCP's property portfolio will now comprise 76 retail units with a total area of 49,532 sq ft valued at $145 million.

Once the Sim Lim sale is completed - it is being financed through bank borrowings - total rental income will be $10.2 million a year, said SCP.

SCP reported a 95.4 per cent plunge in net profit to $628,000 for the fourth quarter ended June 30, down from the $13.5 million a year ago.

But for the year, SCP's earnings before interest, depreciation, taxation and amortisation rose 5.8 per cent to $14.6 million.

Mr Salleh said the sale was approved by the board on Wednesday and will be subject to shareholder approval at an extraordinary general meeting in December. SCP shares closed half a cent down at 33.5 cents yesterday.

Team Marshe
Martin Koh/ Sherry Tang
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www.marshe.net
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