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Three Singapore office transactions totalling well over S$1 billion (RM2.4 billion) were inked in quick succession last week and analysts believe that more purchases, especially those by real estate investment trusts (REITs), are in the pipeline. They attribute this to a favourable investment environment, with equity markets recovering from the subprime crisis lows, historically low interest rates and higher liquidity.
On March 21, Keppel Land’s commercial REIT, K-REIT Asia, announced the purchase of Levels 26 to 29 of Prudential Tower, which has a total net lettable area (NLA) of 223,830 sq ft, for S$125.1 million. The purchase boosts its stake in the 30-storey office property to 93%, from 73%. Innisvale Investments Pte Ltd, Maraha Pte Ltd, Lima Bintang Holdings Pte Ltd and Mirabeau Gardens Pte Ltd are the sellers, which as part of the deal will provide S$8.1 million worth of rental support up to March 31, 2015. Excluding this amount, the transaction price works out to S$117 million, or S$2,430 psf. K-REIT Asia expects the deal to be immediately accretive to its distribution per unit.
In a March 22 note, DBS Vickers analyst Lock Mun Yee says the deal makes strategic sense, as the higher ownership share will make it easier for K-REIT Asia to make future asset enhancements. Lock adds: “The deal will benefit K-REIT in the long run when the office cycle continues to tick up.”
On March 20, Keppel Land’s fund management arm, Alpha Investment Partner (AIP)’s Macro Trends Fund jointly purchased Capital Square with NTUC Income. The purchase price was said to be the highest for an office deal in Singapore so far this year, at S$889 million, or S$2,300 psf. The property was recently owned by Munich Re and Ergo, which purchased the 16-storey office tower and two rows of conservation shophouses in 2002. It was managed by MEAG Pacific Star Asset Management — a joint venture between real estate investor Pacific Star and MEAG, the asset manager of Munich Re and Ergo. Cushman & Wakefield brokered the sale.
One Finlayson Green, another office building, had been on the market for strata title sale and en bloc sale since last November, with expressions of interest closing on Jan 12. It was announced on March 22 that Kerisvale Pte Ltd, comprising a consortium of private investors, had bought One Finlayson Green for S$227 million from a private equity group managed by Lucrum Capital, says Jones Lang LaSalle (JLL), which brokered the deal. The transacted unit price of S$2,520 psf is considered the highest unit price achieved for a Singapore office deal so far this year.
One Finlayson Green is a 19-storey freehold office building located directly across the street from Raffles Place. It has an NLA of 89,950 sq ft. Based on the purchase price, Lucrum Capital reaped a return of more than 56%, having purchased the property barely a year ago for S$145 million, or S$1,629 psf.
Stella Hoh, head of investments at JLL says the buyers intend to keep the building for the long term. This year, JLL has brokered two other commercial properties: Singapore Technologies Building in Tanjong Pagar, which was sold to Resorts World Singapore for S$150 million (S$1,500 psf), and PoMo in Selegie, which was sold for S$255 million to a private equity fund in a deal that closed last month.
The flow of deals is likely to continue. In a recent report, Credit Suisse analysts believe that “M&A news flows could continue to drive momentum”, especially for office REITs such as K-REIT, CapitaCommercial Trust (CCT) and Suntec REIT.
K-REIT is likely to acquire Ocean Financial Centre, which is expected to receive its temporary occupation permit in 2Q2011. The property is valued at around S$2 billion and this acquisition could boost K-REIT’s asset size from S$3.1 billion to more than S$5 billion, which would rank it as the fifth-largest Singapore REIT by asset size. Marina Bay Financial Centre (MBFC) Phase 2, in which Keppel holds a one-third stake, could also be acquired by K-REIT next year.
CCT, which has S$600 million in cash, is likely to ponder the following options: Reinvest in a Grade-A office building, take up a strategic stake in an overseas office property, redevelop the Market Street carpark or pare down debt. Meanwhile, Suntec REIT is expected to look into acquiring the remaining 80% share of the convention centre it does not own, as well as to buy into MBFC Phase 2 next year.
This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 852, Apr 4-10, 2011
