Building Sale

Oxley's Chevron House sale a better deal for buyer than seller: DBS analysts

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ANALYSTS at DBS Group Research are of the view that the "buyer is the bigger beneficiary" in Oxley Holdings' deal to sell Chevron House for S$1.025 billion, although Oxley and some industry sources disagree.

The sale comes just 16 months after the debt-laden property developer acquired the 32-storey office tower in Raffles Place for S$660 million in December 2017. Oxley has agreed to sell the property to Golden Compass, a wholly-owned unit of US-based real estate fund AEW.

"Based on the available information and our ballpark estimates, we believe the buyer is the bigger beneficiary of this transaction by acquiring the office component of Chevron House at below 4 per cent cap rates, with reversionary potential close to 5 per cent cap rates.

"This has yet to factor in any potential plot ratio upside from the government schemes to incentivise the redevelopment of the Central Business District," DBS analysts Rachel Tan and Derek Tan wrote in a research note on Thursday morning.

The cap rate is the rate of return on an investment property based on the income it is expected to generate.

In response to the analysts' comments, an external spokesman for Oxley said it would not be fair to compare this sale to that of a completed building, seeing as Chevron House still has ongoing alterations, additions and asset enhancement works.

"Also, the building was sold with no tenancy agreements, so it will be up to the buyer to source for tenants," the spokesman told The Business Times on Thursday evening.

"Many developers in the market are saying that Oxley got a great deal by selling a building just based on drawings."

Under the sale-and-purchase agreement, after Oxley receives an initial S$210 million, it is to complete the works and also divest the retail and banking units before the buyer will pay the balance of the consideration and discharge the bank loans.

An industry source who declined to be named said: "Oxley managed to sell it for a handsome profit to shareholders in such a short time, despite the incomplete construction and zero tenancy agreement.

"This could potentially go down as the deal of the year."

The DBS analysts said the initial cash proceeds of S$210 million will facilitate Oxley's repayment of its first tranche of retail bonds of S$300 million expiring on Nov 5, though certain deal terms have not been revealed.

"The devil is in the details, but the terms attached between Oxley and the buyer with regard to the divestment of the retail and banking units, and any other terms and conditions are not made known," they said.

"If we assume that the first tranche of payment is potentially the maximum gain or cash proceeds to be received by Oxley for the sale, we believe the cash received will alleviate some of Oxley's urgent cash requirements, though not completely."

BT understands that the initial S$210 million payment will be the maximum cash proceeds Oxley will receive under the deal.

"There will be further deleveraging when the buyer assumes Chevron House's bank loans upon completion of the transaction when conditions are met," the analysts added.

BT reported on May 1 that the buyer will take over the S$450 million in borrowings which Oxley had taken out to finance its 2017 acquisition of Chevron House. The sale will thus reduce Oxley's debt by that amount.

Oxley has two tranches of retail bonds maturing soon: S$300 million due on Nov 5, 2019, and S$150 million due on May 18, 2020.

It also has S$238 million of corporate borrowings expiring in fiscal 2020/2021, and S$631 million of euro medium-term notes expiring in fiscal 2021/2022.

Oxley shares closed at S$0.32 on Thursday, down 0.5 Singapore cent.

Source: Business Times, 3 May 2019

Oxley confirms S$1.025b sale of Chevron House

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PROPERTY developer Oxley Holdings announced on Tuesday that it had signed a deal to sell Chevron House for up to S$1.025 billion, just 16 months after acquiring the prime office building in Raffles Place for S$660 million.

Oxley said that on April 29, it entered into a sale-and-purchase agreement (SPA) with Golden Compass (BVI) for the latter to buy the entire interest in its wholly-owned subsidiary Oxley Beryl, and take over the existing bank loans for an aggregate value of up to S$1.025 billion.

Oxley Beryl owns Chevron House, a 32-storey commercial development comprising 27 levels of office space and a five-storey retail podium; the building's existing net lettable floor area (NLA) is about 261,280 sq ft.

Oxley's corporate presentation in February revealed that the plan is to increase the building's NLA by 43 per cent to about 374,165 sq ft, subject to approval from the authorities.

The S$1.025 billion sale price works out to about S$2,739.43 psf on the increased NLA. The property sits on a site with a 99-year leasehold tenure from December 1989, leaving nearly 70 years on the lease.

Oxley said the proposed sale is expected to have a positive impact on its net tangible assets per share and earnings per share for the current financial year ending June 30.

It will complete the alterations, additions and asset enhancement works, begun on March 1 on the property, before the final completion of the proposed sale.

The consideration was arrived at through arm's-length negotiations, taking into account the enterprise value of Oxley Beryl, said Oxley.

Under the deal, Golden Compass is to pay S$210 million upon the first completion of the proposed sale, after which 82.35 per cent of the issued and paid-up capital of Oxley Beryl, among others, will be transferred to Golden Compass.

The buyer is to then pay the balance of the consideration and discharge Oxley Beryl's bank loans upon the final completion of the sale, after which the remaining shares in Oxley Beryl will be transferred to Golden Compass. The final completion will take place after the works are done and after the retail and banking units there have been divested.

The Business Times understands that the buyer will take over the S$450 million in borrowings that Oxley had taken out to finance its 2017 acquisition of Chevron House. The sale will thus reduce Oxley's debt by that amount.

The SPA also provides for certain retention sums which will be released when the relevant conditions are fulfilled. Oxley did not disclose these sums or conditions.

Completion of the proposed sale is subject to certain conditions precedent, including shareholders' approval if required by the Singapore Exchange (SGX).

Golden Compass is wholly-owned by the US-based real estate fund AEW. BT had reported in March that Oxley had accepted an expression of interest from AEW to acquire Chevron House.

As one of Singapore's most highly-geared developers, Oxley has been in deleveraging mode of late. It told BT in March that it aims to gradually reduce its net gearing to one time by end-2019, from 2.55 times net debt-to-equity as at end-2018.

It has S$300 million in bonds due in November 2019 and S$150 million in bonds maturing in May 2020.

To pare down its debts, Oxley is focused on selling assets and a quick turnover for completed projects.

In Singapore, aside from Chevron House, it is also looking to sell its Novotel and Mercure hotels on Stevens Road. Oxley has hired exclusive agents to sell the hotels, after having called off a S$950 million sale in March. The company has received interest for the hotels from parties in Hong Kong, BT understands.

Oxley shares closed at S$0.33, up three Singapore cents on Tuesday.

Source: Business Times, 6 May 2019

Commercial real estate deals roaring back to life

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A series of commercial real estate deals amounting to $1.06 billion was inked in the past week, surpassing the total investment volume for the commercial sector in the first quarter of this year.

Evia Real Estate and Metro Holdings bought 7 and 9 Tampines Grande, a pair of premium Grade A office blocks from City Developments Limited (CDL) and Alpha Investment Partners for $395 million.

Mitsubishi Estate and CLSA entered into a share purchase agreement with a Perennial-led consortium to buy Chinatown Point mall for $520 million, while Realty Centre, an office building in Tanjong Pagar, has sold for $148 million in the year's first commercial collective sale deal.

The investment sales market took a breather in the first three months of this year, with total sales staying muted at $4.6 billion, a 21 per cent decline quarter on quarter, and only about 13 per cent of the total annual investment volume last year.

The residential sector chalked up sales of $1.2 billion, with the commercial and hospitality sectors next at $900 million apiece, followed by the industrial sector at $600 million. Mixed-use and others posted $1 billion of sales.

The office sector was quiet in the first quarter, with only a few strata deals. Alpha Investment Partners acquired five floors in Suntec Tower 1 and one floor in Suntec Tower 2 for $160 million.

The retail sector saw several shopping mall transactions. In the largest private transaction of the quarter, CapitaLand and CDL acquired Liang Court mall for $400 million, and SC Capital Partners bought Rivervale Mall for $230 million.

There were a few significant transactions in the industrial and hospitality sector. SGRE Banyan entered into a $227.5 million sale-and-leaseback deal for Vibrant Group's 121 Banyan Drive warehouse. Cheong Sim Lam acquired Ascott Raffles Place Singapore for $353.3 million.

The office sector is the hottest one here after Grade A Central Business District rents extended their gains by 12.7 per cent last year and potentially another 9 per cent this year. Limited supply completions and decade-low vacancy rates have raised investor interest in the sector.

Activity in the office sector is expected to pick up further in the coming quarters, with Chevron House, Anson House and 139 Cecil Street going on the market. In addition, Frasers Property is in talks with interested parties for a potential sale of Frasers Tower.

DUO Tower and its retail component are also on the market with potential suitors such as CapitaLand Commercial Trust, Singapore's biggest office landlord, according to Bloomberg.

There could also be some deals inked in the hospitality sector. RB Capital is said to be in exclusive due diligence on Andaz hotel at DUO. Oxley has put its Mercure and Novotel hotels back onto the market, while Global Premium Hotels has placed its portfolio of 23 hotels for sale at $1.4 billion.

The writer is the head of research for Singapore and South-east Asia at global property consultancy Cushman & Wakefield.

Source: Straits Times, 28 Apr 2019

Realty Centre in Tanjong Pagar sold for S$148m, below reserve price

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REALTY Centre, an office building in Tanjong Pagar, has been sold for S$148 million in 2019's first commercial en bloc sale, although the figure falls short of the reserve price. 

Marketing agent Cushman & Wakefield had put the freehold 12-storey building up for collective sale with a reserve price of S$165 million in January. 

The buyer is Singapore-listed The Place Holdings, which intends to redevelop the property into a mixed-use commercial andresidential tower, subject to regulatory approvals. The building will also serve as the company's headquarters, according to SGX filings on Monday night.

The Place Holdings deals in branding, events organising and tourism-related business development, and is backed by China's The Place Investment Group.

Realty Centre has a land area of about 11,000 sq ft and is zoned for commercial use under the Urban Redevelopment Authority's 2014 Master Plan with a plot ratio of 5.6 times and a maximum storey height of 35 storeys.

Cushman & Wakefield noted that under the recently announced CBD Incentive Scheme, Realty Centre falls under the Anson precinct. This means that the property is expected to enjoy bonus plot ratios of between 25 per cent and 30 per cent if there were to be a change ofuse to either residential and commercial (+25 per cent) or residential with commercial on first storey (+30 per cent). 

Its director of capital markets, Christina Sim, called Realty Centre a "versatile site" sitting on the fringe of a location which will be undergoing "massive urban rejuvenation and transformation".

Source: Business Times, 22 Apr 2019

CapitaLand Commercial Trust pursues S$1.5b Duo office tower

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[KUALA LUMPUR] CapitaLand Commercial Trust, Singapore's biggest office landlord, is among suitors in talks about a potential acquisition of the Duo office and retail development in the city, people with knowledge of the matter said.

The real estate investment trust has been negotiating the purchase of a 39-story office building called Duo Tower, along with the connected Duo Galleria mall, according to the people. The property could be valued at more than S$1.5 billion, one of the people said, asking not to be identified because the information is private.

Other parties also remain interested in the asset, which is located in the Bugis area on the fringe of Singapore's central business district, the people said. The project's owner is separately seeking a buyer for the hotel portion of the development in a deal that could fetch as much as S$500 million, according to the people.

The development is owned by M+S Pte, a joint venture set up in 2011 between Malaysian sovereign fund Khazanah Nasional Bhd and Singapore state investment firm Temasek Holdings. No final agreements have been reached, and there's no certainty the talks will result in a transaction, the people said.

Source: Business Times, 19 Mar 2019

Standalone CBD building formerly known as Cecil House up for sale again after revamp

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A STANDALONE building at 139 Cecil Street is up for sale again via an expression of interest exercise after an extensive revamp, said real estate firms CBRE and JLL in a statement on Tuesday.

An 18-month additions and alterations exercise by the building's owner has increased the number of floors from 11 to 16, with a restaurant on the ground floor and a pool on the roof terrace.

The building is fully leased for an initial six years to Campfire Collaborative Spaces, a Hong Kong-based co-working space. With a net lettable area of about 85,000 square feet, the space is also Campfire’s largest site globally, said the joint marketing agents.

The property, formerly known as Cecil House – was unsuccessfully put up for sale in April 2017 with an indicative price of S$210 million. It is owned by Ececil, a joint venture between Vibrant Group and DB2 Group - with Vibrant holding 51 per cent of the company, according to an earlier BT report.

The expression of interest exercise closes on April 17.

Galven Tan, CBRE’s executive director, capital markets for Singapore said that given its prime location and strong attributes, “keen investor interest" in 139 Cecil Street is expected. He added that the availability of naming and signage rights also adds to the appeal of this property.

Clemence Lee, JLL’s Singapore senior director, capital markets, said that the property offers investors an opportunity to acquire a brand new, high-quality standalone office building with a “palatable investment quantum in Singapore”.

"With a six-year lease to a strong anchor tenant in place, investors will be able to enjoy immediate, long-term and stable cash flow with built-in rental escalations," Mr Lee added.

Source: Business Times, 12 Mar 2019

Many ways for Oxley to exit its Chevron House investment

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SINCE the start of this year, Oxley has unveiled a few divestments. On Jan 21, the group announced the sale of two offices blocks (Blocks 4 and 5) of its Dublin Landings project in Ireland for a total of 204 million euros (or S$315 million). This was followed by the announcement on Jan 28 of a proposed sale in parts of two residential blocks (Blocks B and E) in the same development for 175.5 million euros.

Earlier in the same month, on Jan 10, Oxley revealed that it had accepted a non-binding letter of intent for the purchase of the Mercure and Novotel hotels along Stevens Road for S$950 million.

Completion of the above transactions is expected to help Oxley - one of the most highly geared property groups listed on the Singapore bourse - to lower its net gearing ratio to about two times from the high of 2.55 times as at Dec 31, 2018.

Word on the street is that its stake in Chevron House, an office-and-retail development next to Raffles Place MRT Station, may be a further candidate for divestment.

However, things are still fluid, with a few permutations of a potential exit mulled over the past year for Chevron House, which has an eye-catching design, including office floors that have a circular shape at one end.

Oxley has owned Chevron House for about a year. It entered into a deal in December 2017 to buy the 32-storey building from Deka Singapore, a unit of Germany's DekaBank Group, for S$660 million, and completed the transaction in March 2018.

When the building was being marketed in the second half of 2017, it had been pitched, among other things, for potential asset enhancement and strata sale exit.

Word in the market is that Oxley last year courted some potential tenants to lease space in the building after it has been revamped; the group also tried to interest potential investors to buy strata floors with the proposition of secured tenancies and assured recurring income.

Let's look at the scope of potential works for the asset, which was previously known as Caltex House and completed in 1993. The building has a total net lettable area (NLA) of about 261,280 sq ft - comprising 215,667 sq ft of offices over 27 floors (from levels 6 to 32) and 45,613 sq ft of retail space on five floors (from basement 1 to level 4).

Basements 2 and 3 house car park lots.

The development has unutilised gross floor area (GFA) of about 15,000 sq ft which may potentially be accommodated in the retail podium, based on earlier reports. The lettable space on office floors will go up due to renovations including relocation of mechanical and electrical equipment.

Some of the basement car park space is expected to be converted to lettable area and this is expected to be occupied by a gym/fitness operator.

A few F&B tenants are also said to have signed up.

There has been speculation that Oxley is in advanced negotiations to lease multiple floors to WeWork post-refurbishment. By some accounts, WeWork could take up eight office floors.

According to market talk, a combination of whole-floor tenancies and renovation works is expected to boost Chevron House's efficiency (ratio of NLA to GFA) from about 65 per cent to 80 per cent. A slide in Oxley's corporate presentation last month shows that the plan is for the building's NLA to increase by 43 per cent to about 374,165 sq ft, subject to approval from the authorities.

BT understands that Oxley began serving notice to tenants in the third quarter of last year to vacate Chevron House. The building is now empty. (Anchor tenant Chevron moved to Duo Tower last year; it had negotiated its lease in the iconic Beach Road project even before Oxley bought Chevron House in Raffles Place).

Preparatory works for Chevron House's refurbishment are under way and the spruce-up is expected to be completed in about a year's time.

While Oxley may have begun exploring its exit for this asset through potential strata sales, probably on a one-title-per-floor basis, it turns out that some potential investors may have provided feedback to Oxley that they are more keen on buying the whole building.

The touted price tag of about S$1 billion works out to about S$2,670 psf on the increased NLA of about 374,165 sq ft.

No doubt, Chevron House has a prime location in the traditional Raffles Place CBD. However, it is on a site with 99-year leasehold tenure since December 1989, leaving nearly 70 years' balance lease - compared with freehold and 999-year leasehold tenures for most of the surrounding buildings.

Will Oxley proceed with its strata sale strategy? Perhaps the group may be more inclined to sell a stake in the property to a like-minded partner and thus retain a share in any further upside. That said, if an attractive offer surfaces, who knows if the group may just divest the entire building on a turnkey basis.

As the old saying goes: There is more than one way to skin a cat.

Source: Business Times, 7 Mar 2019

CCT sells Twenty Anson for S$516m in biggest pure-office deal this year

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CAPITALAND Commercial Trust (CCT) is selling Twenty Anson, a 20-storey office building in Tanjong Pagar, to an undisclosed buyer for S$516 million, in the biggest pure-office, real-estate deal this year.

The announcement by the trust's manager on Friday confirms a report by The Business Times last month that such a divestment was in the works as part of CCT's ongoing asset portfolio reconstitution.

After several bids were weighed, the development fetched a price that was 19.2 per cent above the valuation of S$433.0 million carried out last December.

The price is also 20 per cent higher than the S$430.0 million CCT paid for it in 2012.

Cushman & Wakefield (C&W), which brokered the deal, said it was the largest full-office transaction to date this year, dwarfing previous record-holder MYP Plaza at S$247 million.

Its executive director of capital markets, Shaun Poh, said the sale "caps a robust quarter for the office investment market on the back of a rental recovery in the prime office market.

"Investors remain confident of Singapore's prime office rental growth story and depleting office supply over the next three years." The price-tag for Twenty Anson, which has a balance lease tenure of 881/2 years, works out to S$2,503 per square foot of the building's net lettable area of about 206,000 sq ft.

As at March 2018, it was 94.3 per cent occupied. Its top tenants are Toyota Motor Asia-Pacific, BlackRock Advisors Singapore and BCD Travel Asia-Pacific.

But the property accounts for just 3 per cent of CCT's net property income. CCT said that on a pro-forma basis, the impact of its divestment on its distributable income is expected to be neutral, as loss of net property income would be offset by interest savings from loan repayment.

The sale consideration also translates to a net property yield of 2.7 per cent based on Twenty Anson's net property income of S$13.8 million for the 12 months before March 31, 2018.

Assuming net divestment proceeds are used to repay existing debt, CCT said its pro-forma aggregate leverage would drop from 37.9 per cent as at March 31 to 34.5 per cent.

Said Mr Kevin Chee, chief executive of CCT's manager, in a statement on Friday: "The divestment of Twenty Anson is in line with CCT's proactive strategy to reconstitute the trust's portfolio and optimise returns for our unitholders."

With the shedding of Twenty Anson in the city fringe, CCT's portfolio is now more focused on Singapore's core office markets of Raffles Place and Marina Bay.

Last year, it bought the office and retail space at Asia Square Tower 2 for S$2.1 billion. In 2016, it acquired the remaining 60 per cent interest in CapitaGreen (at the former Market Street Car Park site) which it did not already own for S$393 million. Last year, CCT sold a half-stake in One George Street, which is about 400 m from Raffles Place MRT Station, for S$592 million, and offloaded Wilkie Edge in the Selegie area for S$280 million.

Last month, CCT also acquired a 94.9 per cent stake in the Galileo, a prime office skyscraper in Frankfurt's banking district, for 356 million euros (S$565.7 million).

Said Mr Chee: "We'll continue to explore opportunities to enhance our portfolio, as demonstrated by our ongoing development of CapitaSpring in Singapore and the acquisition of the Galileo in Frankfurt."

Upon completion of Twenty Anson's divestment, which is expected in the third quarter of this year, CCT said its portfolio will comprise 10 properties with a total net lettable area of 4.7 million sq ft in Singapore's Central Business District and in Frankfurt.

CCT units closed three Singapore cents or 1.84 per cent higher at S$1.66 on Friday.

Source: Business Times, 30 Jun 2018

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CapitaLand Commercial Trust sells Twenty Anson for $516m

SINGAPORE - CapitaLand Commercial Trust (CCT) has agreed to sell Twenty Anson, a 20-storey office building in Tanjong Pagar, to an unrelated third party for $516 million, its manager announced on Friday (June 29).

The sale price, arrived at through a bidding process, works out to $2,503 per square foot of the building's net lettable area of approximately 206,000 sq ft.

The price is also 19.2 per cent above the property's valuation of $433.0 million done on Dec 31, 2017, and 20 per cent higher than CCT's purchase price of $430.0 million in 2012.

The transaction is expected to be completed in the third quarter of this year.

The sale consideration translates to a net property yield of 2.7 per cent based on Twenty Anson's net property income of $13.8 million for the 12 months preceding March 31, 2018.

Assuming net divestment proceeds are used to repay existing debt, CCT's pro-forma aggregate leverage would drop from 37.9 per cent as at March 31 to 34.5 per cent.

Mr Kevin Chee, CEO of the CCT's manager, said: "The divestment of Twenty Anson is in line with CCT's proactive strategy to reconstitute the trust's portfolio and optimise returns for our unitholders. This transaction will unlock value and enhance the trust's financial flexibility.

"We will continue to explore opportunities to enhance our portfolio as demonstrated by our ongoing development of CapitaSpring in Singapore and acquisition of Gallileo in Frankfurt, Germany."

Upon completion of the sale, CCT's portfolio will comprise 10 properties with a total net lettable area of 4.7 million sq ft across in Singapore's CBD - Raffles Place, Marina Bay, Tanjong Pagar and City Hall - as well as the banking district in Frankfurt, Germany.

Completed in 2009, Twenty Anson has sheltered access to Tanjong Pagar MRT station. It has a total net lettable area of approximately 206,000 sq ft.

As at March 31, Twenty Anson had a committed occupancy rate of 94.3 per cent. Its top three tenants are Toyota Motor Asia Pacific Pte Ltd, BlackRock Advisors Singapore Pte Ltd and BCD Travel Asia Pacific Pte Ltd.

The building for about 3 per cent of CCT's net property income. CCT said that on a pro-forma basis, the impact of its divestment on its distributable income is expected to be neutral as loss of net property income would be offset by interest savings from loan repayment.

CCT was trading at $1.64 apiece, up one Singapore cent or 0.6 per cent, heading into the lunch break.

Source: Straits Times, 29 Jun 2018

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

Singapore an emerging hot market for private equity real estate funds

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CBRE estimates that about US$6b may be deployed in the Republic between this year and 2020

The recovery in office rents here may be turning Singapore into one of the most popular markets in the region for private equity real estate funds.

CBRE estimates that some US$6 billion may be deployed in Singapore from this year to 2020, with about US$4 billion having been invested here by these funds between 2014 and the third quarter of 2017.

The latest quarterly figures from the Urban Redevelopment Authority last week showed office rents here rose at a faster clip in the fourth quarter and clocked a full-year increase of 0.4 per cent, in a reversal from an 8.2 per cent decline in 2016.

But CBRE also cautioned that pricing is beginning to reflect improved rental growth. In a report released on Wednesday, it projected that between 2018 and 2020, the top three recipients of capital from closed-end real estate funds focused on the Asia-Pacific would be Australia, Japan and China.

Between 2014 and Q3 2017, US$42 billion of capital was raised by such funds, which translates to around US$116 billion in purchasing power after factoring in leverage. Since then, US$63 billion (54 per cent) of the capital has been deployed, with the three countries bagging nearly 70 per cent of the total investment.

Core or core-plus funds have focused on Australia, but Japan is the second most popular destination for all types of investors as favourable lending terms are easily available.

China and Hong Kong attracted strong interest from value-add and opportunistic funds as low yields compel investors to move up the risk curve to achieve target returns.

This trend has also emerged in Singapore, where fund managers invest in office buildings with upgrading potential to capture occupiers' flight to quality, CBRE said.

CBRE Research estimates that funds possess US$53 billion to be invested in the region over the next three years. Of this, 70 per cent sits with opportunistic funds, 20 per cent with value-added funds, and the balance, with core or core-plus funds.

Core investments are seen as the least risky; they often target stabilised, fully leased, secure investments in major core markets. Value-added investments target properties with in-place cash flow, but seek to grow that over time by making improvements to or repositioning the property. Opportunistic real estate investments follow the value-add approach, but take on more risk.

Given the investment period of closed-end real estate funds, around US$22 billion will have to be invested in the next two years; if not, the funds would need to apply for an extension or return the capital to investors.

"The acute lack of stock and low property yields will necessitate greater creativity among fund managers and require them to move up the risk curve," CBRE said.

CBRE Research still expects Asia-Pacific prime office, retail and industrial yields to be stable this year.

On why Australia, Japan and China could again be the top Asia-Pacific destinations for capital deployment in the next three years, CBRE said that signs of a stabilising economy in China may encourage the return of funds to Tier-1 cities and beyond; Japan remains attractive due to the attractive yield spread, though a lack of stock for sale in Tokyo is a big hurdle.

In Australia, Sydney and Melbourne will remain the main focus for funds, but interest in secondary cities such as Brisbane and asset classes such as student housing is growing.

CBRE Research said it believes core-funds are looking mainly at office and logistics assets and niche sectors that provide long lease terms, such as data centres and cold storage.

For value-add funds willing to take on some leasing risk, CBRE Research said Kowloon East in Hong Kong, Seoul and decentralised areas of Shanghai offer opportunities. Such funds may also provide debt to real estate development projects or to completed properties.

As for opportunistic funds, they will have to be more creative in their strategy as it will become more challenging to achieve high returns by taking on development risk, CBRE said.

Source: Business Times, 5 Feb 2018