A CONSORTIUM that includes private equity group KOP is believed to be doing exclusive due diligence on a potential purchase of Keppel Reit's majority stake in Prudential Tower.
Sources say the pricing could be in the region of $2,340 per square foot (psf) of net lettable area (NLA). Based on the 221,241 sq ft net lettable area or 92.8 per cent share of the building that Keppel Reit owns, the deal size would work out to nearly $520 million.
Keppel Reit was earlier said to have had an asking price of $2,400 psf of NLA. The top floor of the 30-storey office tower is owned by Prudential and half of the 16th floor is held by a private investor. The building is on a site with a balance lease term of about 81 years.
Major tenants in the building include Prudential Assurance Singapore, UniCredit Bank and Compass Office. Prudential Tower was among the properties that helped contribute a 14.7 per cent year-on- year increase in Keppel Reit's net property income for the first quarter of this year. The asset was valued at $490 million at the end of last year.
CBRE is thought to be brokering the sale.
Some analysts note that the trust is looking to divest itself of Prudential Tower, which is fully let and hence seen at an already optimal stage, to help partially fund a potential acquisition of Keppel Land's stake in Marina Bay Financial Centre Tower 3. Keppel Land is the trust's biggest shareholder.
A stone's throw from Prudential Tower, Capital Square - on a site with similar balance lease term - changed hands for about $2,300 psf or $889 million in 2011.
Office market players generally describe Prudential Tower's pricing as within expectations, given the relatively large quantum involved of more than $500 million, and the dearth of takers for big-ticket properties currently.
"If the deal size had been smaller, this asset would have fetched a higher psf price especially since this is a Grade A office asset," said an investor.
There is currently a shortage of local buyers for big-ticket office buildings, and most major foreign property funds prefer to purchase office space in other markets such as Japan(where there is positive carry, ie, property yields are higher than financing cost) andAustralia.
"There are embedded risks in the Singapore office market - such as short tenancies, rental market volatility and low yields," said an observer.
Another market watcher pointed out that many of the Singapore office building purchases in the past few years have been by Asian families looking for a place to park their money for wealth preservation.
KOP has been in the headlines lately with a series of investments. In Shanghai, it is expected to begin developing this year a 13.5 billion yuan (S$2.74 billion) mega winter resort. Recently, KOP Group acquired a majority stake in US-based exhibition production and distribution company Victory Hill Exhibitions.
KOP is also involved in the refurbishment of Fort Canning Centre, which will eventually be home to the upcoming private museum, Singapore Pinacothèque de Paris, in 2015. The group has also developed high- end residential projects here.
Source: Business Times, 17 Apr 2014