Published December 18, 2012

UE shoots to over 4-year high on 79 Anson purchase

It's paying $2,029 psf on net lettable area; rent has upside potential

By Kalpana Rashiwala

UNITED Engineers' announcement before the start of stockmarket trading yesterday that it is acquiring 79 Anson Road for $410 million sent the counter to its highest level in more than four years.

It rocketed 18 cents or 6.2 per cent from its Friday close to end at $3.09 yesterday, after touching a high of $3.11 in the morning.

In its announcement to Singapore Exchange, UE said it plans to rename the 23-storey freehold office tower to UE BizHub Tower - subject to approval from the authorities.

UE is buying the building from its two owners - Singapore's Central Provident Fund Board and German fund manager SEB.

CBRE brokered the transaction.

UE's acquisition price amounts to $2,029 per square foot (psf) based on the building's net lettable area (NLA) of 202,092 sq ft.

This will be UE's first commercial property in Singapore's Central Business District. It will enhance the group's strategy of building a stable base of rental income to help smoothen fluctuating development profits. The group is involved in engineering, construction and property.

With a strong tenant base and high occupancy, 79 Anson Road will provide UE with stable rental income with upside potential in rental rates. The building is currently 99 per cent tenanted and has Kellogg Brown & Root Asia Pacific Pte Ltd as its anchor tenant until 2016. "There will be opportunities for revision of rentals to market rates over the coming years," UE said.

Based on the estimated $11.1 million annualised net profit before interest expense and tax from the asset indicated by UE in its SGX filing, the property yield based on the acquisition price would be around 2.7 per cent.

Located near Tanjong Pagar MRT Station, 79 Anson Road was completed in 1992 and renovated in 2010. It has 145 car parking spaces.

The group also highlighted the property's proximity to the port land in Tanjong Pagar, Keppel and Pulau Brani.

"The area is envisioned to become a waterfront city once the leases for the ports expire in 2027. As announced by the Economic Strategies Committee in 2010, this new city will comprise office blocks, hotels, waterfront housing and a host of lifestyle and tourist attractions. The property is, therefore, well positioned to benefit from the upcoming Tanjong Pagar Waterfront City project," UE said.

Market watchers note that UE's acquisition price for 79 Anson Road also reflects $1,418 psf based on the building's existing gross floor area (GFA) of 289,185 sq ft.

This exceeds the 236,566 sq ft based on the 8.4 plot ratio designated for the site under Urban Redevelopment Authority's Master Plan 2008. The site, with land area of 28,163 sq ft, is zoned for commercial use and can be built up to 35 storeys. Most property consultants reckon the building can potentially be rebuilt up to its existing GFA without any development charge payable to the state.

The $1,418 per square foot per plot ratio (psf ppr) unit land price for 79 Anson Road is close to the $1,420 psf ppr paid in May this year for Tower 15 in Cantonment Road by Fragrance Group based on that building's existing GFA. Tower 15 is also freehold.

Maybank Kim Eng Research yesterday initiated coverage of UE with a "Buy" recommendation and $4.18 target price, based on 25 per cent discount to revalued net asset value. "With the current share price reflecting just 54 per cent of the stock's real worth, UE is truly a diamond in the rough," it said.

"With an investment property portfolio worth $1.7 billion, United Engineers, a long undervalued company, is on the brink of a major transformation to unlock value. We believe that its major shareholder, OCBC, could push for change. In the recent strings of divestment, all eyes are now on UE, the last remaining piece of the OCBC jigsaw," Maybank Kim Eng notes.

Separately, UE announced that it installed the first bridge across Orchard Road in the wee hours of Monday morning. The bridge, expected to be opened to the public in the fourth quarter of next year, links two developments the group is handling - a 21-storey hotel and retail development on the former Specialists' Centre/Hotel Phoenix site, and an 11-storey office and retail project on the former Orchard Emerald site.

The entire project, dubbed orchardgateway, is designed by Tange Associates. Spanning 53 metres across Singapore's shopping district, the iconic glass bridge weighs about 100 tonnes. It can support about 900 people.