Alpha fund, CDL tie-up put two office assets on the market

AIMING to cash in on the upturn in the Singapore office market, Alpha Investment Partners and City Developments Ltd (CDL) are understood to have put Manulife Centre in Bras Basah Road, and 7 & 9 Tampines Grande up for sale through separate expressions of interest exercises.

The total price tag of the two assets exceeds S$1 billion, The Business Times understands.

The vendors are looking at prices in excess of S$550 million for Manulife Centre, which works to about S$2,270 per square foot based on the 11-storey commercial building's net lettable area (NLA) of about 242,000 sq ft. The building has retail space on street level and offices above.

Manulife Centre is being offered on a remaining leasehold tenure of about 97 years.

For 7 & 9 Tampines Grande, comprising a pair of eight-storey office buildings with retail units on the ground floor, the asking price is in excess of S$450 million - translating to around S$1,565 psf on the NLA of nearly 288,000 sq ft. The property is on a site with about 88 years remaining lease. Key tenants include Hitachi, NCR and Daikin; the occupancy rate is said to be around 93 per cent.

These two properties are part of a trio acquired by a 60:40 joint venture (JV) between Alpha Asia Macro Trends Fund (AAMTF) II and CDL under a "profit participation securities" or PPS exercise in December 2015.

The third asset is Central Mall (Office Tower) on Magazine Road.

CDL sold the three properties for about S$1.1 billion under the PPS exercise.

Manulife Centre is a 999-year leasehold property and Central Mall (Office Tower) is a freehold asset. What CDL sold in late-2015 with regard to each of these two assets was a 99-year leasehold tenure, with the property group having reversionary interest of each property at the expiry of the 99 years.

For 7 & 9 Tampines Grande, which CDL developed on land bought at a state tender, what it sold under the PPS exercise was the remainder of the 99-year leasehold interest that started on Aug 20, 2007.

The EOI exercise for Manulife Centre, which is being handled by JLL and Savills, will close in the first half of May, while that for 7 & 9 Tampines Grande, being marketed by JLL and Cushman & Wakefield, is slated to close in June.

The earlier-than-expected recovery in Singapore office rents that began last year has helped to fuel investment sales of a string of office properties on the island.

Under the PPS deal, the AAMTF II-CDL JV paid S$487.5 million for the 99-year leasehold interest in Manulife Centre and S$366 million for the Tampines Grande property, which at the time had 91 years' remaining lease.

The PPS was structured with a five-year life span, although this can be extended. So, at the outset, the plan was for the AAMTF II-CDL JV to sell the three assets by the fifth year.

In late-February this year, CDL's chief executive Sherman Kwek acknowledged that exiting from these office properties would reap "handsome profits" given how the capital values of office properties have jumped since 2015.

Under the PPS structure, from the proceeds of the asset disposal, the first priority would be to repay bank borrowings, followed by repaying AAMTF II its capital, then a preferred return to AAMTF II amounting to a total internal rate of return of up to 12.6 per cent per annum.

Only after this will CDL be repaid its capital investment.

Thereafter, whatever cash flows remain will be split between CDL and AAMTF II 60:40. This is the reverse of the ratio of their respective capital outlay and was aimed at incentivising CDL to maximise returns.

Manulife Centre has an attractive city-fringe location, flanked by two MRT stations: Bencoolen station on the Downtown Line and Bras Basah station on the Circle Line.

The building is understood to be around 95-98 per cent let, with anchor tenant Manulife occupying about 100,000 sq ft, or about half of the building's office space.

The insurer will be relocating to 8 Cross Street later this year; its lease at Manulife Centre expires next year.

This would be seen as a drawback by some potential investors but could also be viewed positively as it creates the opportunity for the new owner to sign fresh leases in a rising office rental market.

Moreover, a well-located building, albeit not in a traditional office district, with a big vacancy coming up could suit a buyer looking for its own premises to house its corporate headquarters. It could potentially upgrade the building and plant its name on it.

There is also potential to boost the building's lettable space by scrapping excess car park lots. The retail space can also be expanded from just the ground level currently to the second level or even the third level. Retail space typically fetches higher rents than offices.

As for 7 & 9 Tampines Grande, it is in the heart of Tampines Regional Centre and a stone's throw from the Tampines Station on the Downtown Line.

Completed less than 10 years ago, the property was awarded Green Mark Platinum status by the Building and Construction Authority.

An incoming buyer could potentially seek approval from the authorities to strata subdivide the property into smaller units for sale.

Source: Business Times, 30 Apr 2018