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Thread: $2.09b sale of Asia Square Tower 2 is year's biggest office real estate deal

  1. #1
    Join Date
    Oct 2011

    Default $2.09b sale of Asia Square Tower 2 is year's biggest office real estate deal

    $2.09b sale of Asia Square Tower 2 is year's biggest office real estate deal

    Sep 22, 2017

    CapitaLand Commercial Trust's purchase of Marina Bay building seen as sign of recovery in office market

    Annabeth Leow

    CapitaLand Commercial Trust has scooped this year’s biggest office real estate transaction by sale price after it announced a deal yesterday for Marina Bay’s prime Asia Square Tower 2.

    It will fork out $2.09 billion to take the 46-floor office block off the hands of asset management firm BlackRock, in a deal that signals the recovery of Singapore's commercial property market, industry watchers said.

    The sale will yield $2,689 per sq ft (psf) for the building, which is 10 years into its 99-year lease.

    The record psf price for a 99-year leasehold commercial building is $3,125 psf for 71, Robinson Road in 2008, while the 999-year leasehold Straits Trading Building last year hit a fresh high at $3,250 psf.

    Asia Square Tower 2, which has a net lettable area of 778,719 sq ft, will be partly paid for with a $700 million rights issue and $340.1 million from earlier divestments of Golden Shoe Car Park, Wilkie Edge and a 50 per cent stake in One George Street.

    CapitaLand Commercial Trust is also counting on $1.12 billion in bank borrowings to finance the latest acquisition, which it expects to have a net property income yield of 3.6 per cent a year. The Reit manager is banking on an uplift in Grade A office rents and found the agreed property value to be lower than comparable properties' valuations.

    Chairman Soo Kok Leng said the deal amply makes up for the recent divestments' exit yields and is a strategic move that helps to rejuvenate the trust's portfolio with newer and higher-yielding assets.

    Ms Tricia Song, head of research at Colliers International Singapore, said the deal is a timely one.

    Commercial property prices are set to rise, thanks to a waning supply pipeline in the next two years.

    JLL manages the development and advised on the transaction, with head of Asia-Pacific capital markets Stuart Crow noting that non- strata-titled projects in the Central Business District will peak this year with about 2.2 million sq ft in completed buildings. "Thereafter, new supply is expected to taper down to less than 1 million sq ft in 2018, and no major office completion is expected in 2019."

    He said: "We are at a point in the cycle where there is still the opportunity to get good value, so that is why we expect sustained investor interest for the rest of the year."

    CBRE was also an agent for the sale, which executive director of capital markets Jeremy Lake said "provides another pricing benchmark that reconfirms that the recovery in office rents and prices is well under way". He added: "One or two owners have been tracking this deal, pending making a decision to sell their own building."

    Colliers' Ms Song said: "Other deals to watch out for for the rest of the year include Chevron House and AXA Tower, and the Beach Road GLS commercial site tender which will close next Thursday."

    BlackRock last year sold Asia Square Tower 1 to the Qatari sovereign wealth fund for a record $3.4 billion, or about $2,720 psf.

    CapitaLand pulled out of talks to buy that block in 2015, despite Bloomberg reports that its tie-up with Norway's sovereign wealth fund was the preferred bidder.

  2. #2
    Join Date
    Oct 2011


    CCT climbs CBD ladder with S$2.1b purchase of Asia Square Tower 2

    The price it is paying works out to S$2,689 psf on NLA; rights issue that will partly fund the purchase will be yield dilutive in the short term

    Sep 22, 2017

    Kalpana Rashiwala

    CAPITALAND Commercial Trust (CCT) is finally making its debut in Singapore's premium Marina Bay office market with its acquisition of the office and retail space at Asia Square Tower 2 for S$2.094 billion or S$2,689 psf on net lettable area (NLA). The seller is BlackRock Asia Property Fund III.

    This is the biggest office investment sales deal in Singapore so far this year, taking the year-to-date tally to S$6.38 billion, according to CBRE Research. The figure for the whole of last year was S$10.08 billion, buoyed by the sale of Asia Square Tower 1 at S$3.38 billion or about S$2,700 psf on NLA to Qatar Investment Authority.

    CBRE and JLL brokered the sales of both towers.

    JLL's head of capital markets, Singapore, Greg Hyland, said that "we expect (Singapore office) prices to pick up in the coming quarters as supply starts to taper down between now and the end of 2019".

    Jeremy Lake, executive director of capital markets at CBRE, said that "one or two owners (of Singapore office buildings) have been tracking this deal pending making a decision to sell their own building".

    CCT said its total acquisition cost for Tower 2, inclusive of transaction costs and acquisition fee, is S$2.151 billion.

    The trust will fund the purchase through a combination of a fully underwritten and renounceable rights issue that will raise net proceeds of S$690.4 million, external bank borrowings amounting to S$1.12 billion and proceeds of about S$340.1 million from the divestments of One George Street or OGS (50 per cent stake), Golden Shoe Car Park and Wilkie Edge.

    The rights ratio will be 166 rights units for every 1,000 existing units. Some 513.5 million rights units will be issued at S$1.363 per rights unit - translating to a 19.6 per cent discount to CCT's Sept 20 closing unit price of S$1.695 and a 17.3 per cent discount to the theoretical ex-rights price (TERP) of S$1.648 per unit. The counter was suspended for the whole of Thursday.

    The rights issue, which closes on Oct 19, will result in some dilution to distribution per unit (DPU) from the actual figure of 4.56 Singapore cents for the first half of FY2017 to a proforma figure of 4.23 cents adjusted to factor in the effects of the OGS, Wilkie Edge and Golden Shoe Carpark transactions, the rights issue and the acquisition of Asia Square T2.

    However, CapitaLand Commercial Trust Management's top brass instead highlighted that the growth trajectory of the earnings from Asia Square T2 is already visible. Based on the TERP, the proforma DPU yield for CCT would be 5.13 per cent (annualised) for H1 FY2017, higher than 4.62 per cent for the whole of FY2016. This is on the back of rising occupancy and net property income (NPI) from Asia Square T2.

    Based on the S$2.094 billion price for this asset, the NPI yield was 3.1 per cent in FY2016 but rose to 3.4 per cent (annualised) for H1 2017. Based on the committed occupancy rate of 88.7 per cent as at June 30, 2017 - including leases signed with tenants that will begin on March 1, 2018 - the price reflects 3.6 per cent NPI yield.

    The space that CCT is buying in Asia Square has a net lettable area of 778,719 sq ft comprising 753,445 sq ft of office space and 25,274 sq ft of retail space. The deal excludes the Westin hotel in the tower which BlackRock sold earlier.

    Asia Square T2's average occupancy rate in H1 2017 was 81.2 per cent. "As we continue to lease (the vacant space), the impact of the acquisition to the portfolio DPU should be greater," said Lynette Leong, chief executive of CCTML. "This is the growth we are looking at Asia Square T2 and that is one of the reasons we are buying it."

    Citing market stats showing that Singapore's Grade A office rents have reached a trough, Ms Leong said the acquisition will position CCT to benefit from the expected market uptick in Grade A office rents. "And given our track record of successful leasing strategies, we will be able to capture further rental income upside from increasing the property's ... occupancy in a rising market." Moreover, the low new CBD office supply completing till 2021 should help the trust to realise the upside in leasing out the vacant space in Asia Square Tower 2 "fairly quickly".

    The acquisition also solidifies the trust's position as the largest office landlord in Singapore's central area, Ms Leong said. "CCT will be well anchored in all the key submarkets in Singapore's CBD namely Marina Bay, Raffles Place, Tanjong Pagar and City Hall. And this will give a variety of locations and product offerings to our office tenants and to meet their needs from different business sectors."

    CCTML chairman Soo Kok Leng highlighted the merits of the group's portfolio reconstitution strategy. One George Street (50 per cent stake) and Wilkie Edge were divested at exit yields of 3.2 per cent and 3.4 per cent respectively, and are being replaced with the acquisition of a newer and higher yielding Grade A asset, Asia Square T2, at an initial yield of 3.6 per cent.

    The property will also boost CCT's portfolio value from S$8 billion to S$10.1 billion and contribute about 15 per cent of CCT's proforma H1 2017 NPI.

    The transaction is also poised to increase CCT's market capitalisation and potentially improve the counter's trading liquidity, Ms Leong added.

    Vikrant Pandey, senior property analyst at UOB Kay Hian, said the transaction cements CCT's position as a quality office landlord. "Previously they did not have a piece of the New Downtown. The acquisition will be yield dilutive in the near term because of the rights issue but there is potential for yield accretion from this asset in the long term as the vacant space in the building is filled amid rising office rents."

    Some market watchers are wondering why Asia Square Tower 2 is being transacted at slightly lower than Tower 1 given the improving sentiment in the office market lately. A property consultant offered this explanation: "The office market rent in Marina Bay in Q2 2017, the quarter prior to the Tower 2 deal, was lower than in Q1 2016 (prior to the sale of Tower 1 in June of that year). Furthermore the actual occupancy rate of Tower 2 is signficantly lower than that for Tower 1 at the the point of divestment."

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