SPH REIT announced that it has entered into a sale and purchase agreement to acquire The Rail Mall located at Upper Bukit Timah Road for a purchase consideration of S$63.2m (total cost estimated to be ~S$65.9m).

The Rail Mall is a retail strip with 360 metres of main road frontage along Upper Bukit Timah Road, and comprises 43 single-storey shop units and 95 private carpark lots, with a total NLA of 50k sq ft.

It has close proximity to Hillview MRT station (250 metres), a network of public bus services as well as BKE and PIE. No details of the NPI yield was disclosed in SPH REIT’s SGX-ST filing. We are neutral on this acquisition.

Although this transaction will allow SPH REIT to diversify its income streams beyond Paragon and The Clementi Mall, the purchase consideration comes in slightly above the independent valuation of S$62.9m.

The Rail Mall also has a relatively short land lease tenure remaining (99-year leasehold which commenced from 18 Mar 1947). Funding is expected to come from debt and internal resources.

We maintain our HOLD rating and S$1.02 fair value on SPH REIT.

Source: OCBC Research - 2 May 2018