Friday, December 25, 2009

Suntec sues Popular over early end to tenancy

SUNTEC real estate investment trust (Reit) is taking legal action after Harris Book Company terminated its tenancy prematurely at Suntec City Mall.

The Reit has lodged a claim against Popular Holdings, the parent company of Harris, for alleged loss and damage suffered.

The huge Suntec mall store is the fourth that Harris has closed this year in the wake of the downturn. Its three outlets at Changi Terminal 3 closed in the middle of the year while this latest closure came in September.

The Harris chain now has three stores – at Great World City, Jurong Point Shopping Centre and the newly opened 313@somerset.

Popular Holdings chairman and managing director Chou Cheng Ngok told the Singapore Exchange that the early termination at Suntec was ‘part of a restructuring exercise to obtain greater…efficiency’.

The statement added that Harris had sought legal advice and believes the Reit’s claim is not sustainable.

Popular declined further comment.

Harris, which has been hit hard by the economic downturn, embarked on an aggressive expansion programme after launching its first outlet at Great World City.

It opened a massive 20,000 sq ft outlet at Suntec City in December 2007 to help it compete with the likes of Borders and Kinokuniya.

In its annual report for the year ended April 30, 2009, the company said that Harris had ‘experienced hardship in its market penetration’, which led to a fall in profit from retail and distribution of 52.7 per cent, from $9.3 million to $4.4 million.

‘Being a new brand in the competitive retail environment with high rental rates, Harris needs longer time to build up awareness and patronage,’ it said.

‘Unfortunately, shortly after the opening of a considerably large store at the Suntec City Mall and three stores at Changi Airport Terminal 3, the Singapore economy, including the airport terminals, were affected by the global economic downturn.

‘As a result, the unsatisfactory performance of the shops forced the group to adopt the strategy of cutting losses to manage our risks and exposures.’

Popular has since recorded a 50 per cent rise in net profit to $14.9 million for the half year ended Oct 31 compared with the same period last year.

Phillip Securities analyst Lee Kok Joo said the exit of Harris from Suntec would not hurt the real estate player too much financially but was a reality check for investors.

‘It shows that the pick-up in the retail sector is not as optimistic as it seems. This gives a better picture of what is happening in the real world.’

The tenancy termination comes amid a rise in Suntec’s retail occupancy rate. It rose to 99.1 per cent in the third quarter this year, from 98.4 per cent in the preceding three months.

Suntec Reit’s share price has also been going up, closing at a 15-month high of $1.37 on Wednesday.

However, retail revenue has yet to pick up and was down 4.6 per cent to $33.2 million in the third quarter from the year before.

OCBC Investment Research analyst Meenal Kumar said: ‘A tenant refresh is always a good thing. If the tenant is not doing well, the mall is not benefiting from that space as well. If Suntec can get a better tenant to draw in better traffic, it could be a net benefit for it.’

Popular bought the Harris brand name in the early 1960s from a British couple, who started it in Hong Kong.

Including the Harris stores, Popular has 132 outlets in Singapore, Malaysia and Hong Kong, including an upscale 16,000 sq ft two-storey outlet at Ion Orchard under the brand Prologue.

Source: Straits Times, 25 Dec 2009

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