Published 20 May 2011
The Business Times
By Kalpana Rashiwala
Two commercial buildings worth more than $2b could see stakes sold
Property investment deals involving two plum commercial properties in the Somerset/Orchard Road area worth more than $2 billion could take place in the next few months.
One is TripleOne Somerset – formerly known as the Singapore Power Building – with a price tag of about $1.2 billion or about $2,132 per square foot on net lettable area. The office and retail building is being marketed by CB Richard Ellis and Jones Lang LaSalle through an expression of interest exercise slated to close around mid-June. The seller is a property fund managed by Singapore-based Pacific Star.
There have also been whispers that Australian heavyweight Lend Lease is mulling a sale of 313@Somerset. BT understands that Jones Lang LaSalle has been appointed to look into a possible sale but that Lend Lease may not have finalised a decision on the divestment and whether to sell a stake in the mall (say, 25 per cent or 50 per cent) or divest it completely.
Going by ION Orchard’s valuation at $4,169 psf on net lettable area as at Dec 31, 2010, analysts estimate 313@Somerset could be worth about $4,000 psf and based on its net lettable area (NLA) of about 294,000 sq ft, the total amount would work out to nearly $1.18 billion. However, sources say Lend Lease could be eyeing a higher price, in the region of $1.3-1.4 billion, which reflects around $4,400-$4,800 psf on NLA.
The mall offers eight levels of retail space and opened in late 2009. Major tenants include HMV, Zara, Uniqlo, Food Republic, Forever 21 and Royal Sporting House.
Lend Lease is developing a retail and office project next to Jurong East MRT Station. Earlier this year, it divested its stake in PoMo at Selegie Road.
TripleOne Somerset has been put up for sale by Pacific Star’s Asia Real Estate Income Fund (AREIF), which paid $1.01 billion or $1,836 psf on NLA in early 2008 for the 17-storey building, which it bought from Singapore Power and Public Utilities Board.
AREIF later invested about $50 million sprucing up the building, including converting the first two levels to retail space and revamping the lobby and entrance. In the process, the building’s net lettable area has increased from 550,000 sq ft to about 563,000 sq ft. The latter figure comprises about 60,000 sq ft of retail space with offices making up the rest.
TripleOne Somerset’s retail tenants include NTUC Fairprice, which operates a gourmet supermarket, and Chinese restaurant group Imperial Treasure. Office tenants include AXA Life Insurance, Worley Parsons and Parkway Holdings. Healthway Medical Group operates several clinics at TripleOne Somerset, and market watchers say that one avenue to increase the building’s rental income would be to lease out more office units (when leases expire) as medical suites, which tend to fetch higher rentals.
The building, which is on a site with a remaining lease of about 63 years, is said to be 96 per cent let.
Currently, the average monthly rental of office tenants in the building is understood to be about $7.70 psf while that of retail tenants is about $9 psf. Based on these rates, analysts estimate the $1.2 billion asking price would work out to net property yield of about 3.5 per cent.
The asset does not have immediate redevelopment potential as its existing gross floor area exceeds that allocated for the site under Master Plan 2008.
Rather, TripleOne Somerset offers more of an income play with upside from positive rental reversion, given the general lack of new office supply in the Orchard Road area and especially if more of the building is leased out as medical suites.
There has also been market talk that Jones Lang LaSalle has found a buyer for 182 Clemenceau Avenue near Dhoby Ghaut MRT Station. The asking price is $75-80 million or $1,613-1,720 psf on NLA.
Other investment deals brewing on the island include Anson House. A potential buyer, said to be an ING Real Estate-linked fund, is believed to be doing due diligence to buy the 13-storey office block; the price is understood to be slightly under $150 million (over $1,900 psf on NLA).
There has also been some buzz in the the Bugis area. Chyau Fwu Development, the owner of Parkview Square, a 24-storey Art Deco-styled office development, is said to have received an offer exceeding $700 million. This works out to nearly $2,100 psf, which would be an impressive price for the location. However, it seems Chyau Fwu is now eyeing an even higher price. Parkview Square and Anson House are on sites with remaining leases of about 85 years.
According to CB Richard Ellis, property investment sales in Singapore totalled $7.23 billion in the first quarter of 2011, down 36 per cent from the $11.3 billion in the preceding quarter but 66.6 per cent higher than the $4.34 billion in Q1 2010.
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