Could intensifying competition in Orchard Road be driving Wharf to sell Scotts Square?

Jan 24, 2024

MAJOR changes are afoot along Singapore’s Orchard Road shopping belt, which could see one of the most famous malls in the area, Scotts Square, change hands soon.

Wharf Estates Singapore (WES), formerly known as Wheelock Properties, put the freehold retail podium at Scotts Square up for sale at a S$450 million guide price.

Located next to Grand Hyatt Singapore along Scotts Road, Scotts Square is part of a mixed-use development, which also has residential units. Its guide price translates to a rate of S$3,438 per square foot per plot ratio, based on a gross floor area (GFA) of 130,875 square feet (sq ft).

However, one cannot help but wonder why the mall’s long-time owner is selling the asset.

Wheelock Properties in 2004 bought what was then Scotts Shopping Centre and The Ascott Singapore Serviced Residences above it. It redeveloped the building, which housed Singapore’s first food court Picnic, into Scotts Square.

WES is ultimately 100 per cent owned by Hong Kong-listed Wharf Real Estate Investment Company (REIC). Wheelock and Company, which is linked to the Hong Kong billionaire Woo family, is Wharf REIC’s major shareholder.

Wharf REIC does not appear to be under financial stress. In its results presentation for H1 FY2023 ended Jun 30, 2023, the group said its net debt was the lowest in four years and it had a credit rating of A2 from Moody’s.

As at end-June 2023, Wharf REIC’s net debt to equity was around 20 per cent. For H1 FY2023, the group was profitable and paid an interim dividend.

Good long-term investment asset

Scotts Square is a freehold asset – an increasingly scarce asset type, given that the government typically sells new sites for commercial development on 99-year leases.

Moreover, Wharf REIC appears happy with the mall’s performance. In its interim report for H1 FY2023, Wharf REIC said Singapore has been booming since 2022.

Its Orchard Road area assets, Wheelock Place and Scotts Square, have enjoyed bustling foot traffic and had strong occupancy. Retail occupancies for the properties were 99 per cent and 98 per cent, respectively, as at end-June 2023.

Wharf REIC’s property portfolio is Hong Kong-centric and spans asset classes such as retail, office and hotel. As Hong Kong’s property market faces a tricky outlook, diversifying via exposure to Singapore assets ought to be deemed desirable for the group.

Indeed, Wharf REIC could expand its presence here instead of possibly shrinking it. Hong Kong-listed Link Real Estate Investment Trust entered Singapore’s mall ownership scene when it completed the purchase of Jurong Point and Swing By @ Thomson Plaza in 2023.

In addition, there is potential to increase Scotts Square’s net lettable area and rents, according to marketing agent Savills Singapore.

Wharf REIC should be capable of enhancing and repositioning Scotts Square. The group is renowned for its flagship Harbour City in the commercial hub of Tsim Sha Tsui, Hong Kong’s largest shopping, dining and entertainment centre.

Wheelock Place versus Scotts Square

However, Wharf REIC may have sound reasons to keep Wheelock Place and divest Scotts Square.

The Orchard Road area is seeing new developments that will help rejuvenate the shopping street. It could benefit from rising visitor numbers to Singapore due to growing prosperity in the region, as well as massive investments to improve the country’s tourism offering.

Towards the western end of Orchard Road, tycoon Ong Beng Seng’s Hotel Properties Limited : H15 0% (HPL) could be turning its Forum The Shopping Mall, voco Orchard Singapore and HPL House into a huge mixed-use redevelopment with a hotel and luxury homes, as well as retail and office components.

Far East Shopping Centre, which is next to voco Orchard Singapore, could also be redeveloped. It was snapped up in a collective sale by a company linked to Bright Ruby Resources and Chinese tycoon Du Shuanghua.

Nearby, Tanglin Shopping Centre, which was bought in a collective sale by the Tanoto family’s Pacific Eagle Real Estate, could be redeveloped into a new landmark.

Close to the other end of Orchard Road, telco Singtel : Z74 +0.84% partnered real estate group Lendlease to redevelop its Comcentre headquarters.

Arguably, Scotts Square may lack the size and not be in the right spot to be competitive over the long term.

According to Wharf REIC’s latest annual report, 99-year leasehold Wheelock Place has 221,800 sq ft of office space and 243,900 sq ft of retail space by GFA. The combined office and retail GFA of Wheelock Place is over 3.5 times that of Scotts Square.

Crucially, Wheelock Place sits in the heart of a stretch of Orchard Road where potential new developments by HPL and Pacific Eagle can complement the offerings of existing leading malls such as Ion Orchard, Ngee Ann City and Paragon.

On the other hand, the Scotts Road area, where Scotts Square sits, risks being bypassed by shoppers.

Redeveloping the sizeable Far East Plaza can draw shopper traffic towards Scotts Road. However, as Far East Plaza’s freehold strata retail units are owned by disparate owners, redevelopment of this mall may not be on the horizon.

Wharf REIC and the Woo family have long ties with Singapore and the Orchard Road vicinity, where Wheelock Properties built developments such as the landmark luxury condominium Ardmore Park.

While excitement brews over Orchard Road’s rejuvenation, Wharf REIC could be right to potentially retreat from the area.

As more new developments emerge there, older and smaller assets in the area may reel from stiffer competition. A rejuvenated Orchard Road could see bifurcation – some malls shine while others struggle.

With competition in the vicinity heating up, ensuring Scotts Square thrives will be tough.

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