Deal brewing for Straits Trading Building

[SINGAPORE] Amid the quiet investment sales market this quarter, a major office deal is brewing. Advanced discussions are believed to be going on for the Straits Trading Building, a landmark 999-year leasehold office tower in Battery Road. The price is understood to be slightly above S$2,800 per square foot (psf) based on the net lettable area (NLA) of about 159,000-plus sq ft, which would translate to a transaction size of about S$450 million. The buyer is said to be an overseas party, from Asia. The net yield could be around 3 per cent.

Market watchers noted that the slightly over S$2,800 psf pricing based on ongoing negotiations would be the highest for an office block in six years, since the record S$3,125 psf achieved for 71 Robinson Road in April 2008, while it was still under construction. At the time, 71 Robinson Road's site had a balance lease term of about 85 years.

Straits Trading Building is nearly fully let, with law firm Rajah & Tann as its anchor tenant. Completed in 2009, the 28-storey building is a redevelopment of the original 21-storey block on the site that was built in 1972.

The pricing for the building is in line with current market values, taking into account its 999-year leasehold tenure and Grade A location in the heart of the Raffles Place financial district, said the market watchers. They pointed to three major transactions in the Raffles Place vicinity earlier this year.

One was the S$3,030 psf sale of the 14th floor of the 30-storey Samsung Hub along Church Street, also a 999-year leasehold building but located towards the fringe of Raffles Place. Typically, one would expect a price discount for an entire office tower compared with the price of a strata office floor or unit.

However, the expected pricing for Straits Trading Building reflects its superior tenure compared with the nearly S$2,316 psf on NLA at which Keppel Reit divested its 92.8 per cent stake in Prudential Tower (on a site with a balance lease term of about 81 years) and the S$2,181 psf sale of Equity Plaza, which is on land with a remaining lease of about 74 years.

In its recent second quarter FY2014 results release, Straits Trading noted that its plans to monetise the group's property portfolio are ongoing and that the proceeds will be redeployed into new real estate opportunities. In June, Straits Trading is said to have sold one of its six freehold Good Class Bungalows (GCBs)on Cable Road at S$31.80 million or S$1,904 psf on land area of 16,706 sq ft. Talk in the market is that the group is seeking S$2,100 psf for the remaining five bungalows.

Straits Trading is thought to be eyeing an even higher price of about S$2,200 psf for three GCBs that it recently completed along Nathan Road.

Helmed by Chew Gek Khim, the group has four key businesses, including an 89.5-per cent stake in Straits Real Estate, a co-investment vehicle with John Lim that seeks out real estate related investments and opportunities. SRE has committed US$80 million to seed and sponsor a development fund to invest in projects in Australia and South-east Asia.

Another of the group's main businesses is a 20.1-per cent stake in ARA Asset Management, a major real estate fund manager in the region.

Straits Trading also holds 30 per cent in Far East Hospitality Holdings - one of the biggest hospitality operators in the region - as a joint venture with listed Far East Orchard Limited. In addition, the group controls 54.8 per cent of Malaysia Smelting Corporation Berhad, which is involved in tin mining and smelting.

Source: Business Times, 26 Aug 2014