AEW boosts Singapore office exposure

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AEW is increasing its presence in the Singapore office market. The US-based global institutional property investment manager is understood to be the buyer of 55 Market Street in the traditional Raffles Place financial district.

Last week, vendor Frasers Commercial Trust (FCOT) announced the S$216.8 million sale of the 16-storey building but did not name the buyer. This is the second Singapore office asset AEW clinched in less than two weeks. In late June, it entered into a deal to buy Twenty Anson from CapitaLand Commercial Trust (CCT) for S$516 million. CCT in its announcement of the sale also did not name the buyer.

Market watchers say the acquisition prices seem to be on the high side, translating to low entry yields.

Savills Singapore senior director of research and consultancy Alan Cheong noted that Singapore office yields have been compressing. Perhaps AEW is bullish about Singapore office values, given the ongoing recovery in CBD Grade A rents, which are expected to continue amid tightening supply, he added.

Analysts expect AEW to refurbish the assets, do some tenant repositioning or sell strata units to optimise its investment. Another suggestion is that AEW could engage a co-working operator to take a long-term lease at the buildings.

Word on the street is that both acquisitions will likely be made by AEW’s third Asia-Pacific value-added fund, AEW Value Investors Asia III, which had its final closing recently, with commitments totalling US$1.12 billion inclusive of client co-investment capital.

AEW seems to be adopting a low-profile approach and has not gone public about the two recent acquisitions here. When contacted by BT, its Singapore office declined to comment.

AEW’s acquisition of Twenty Anson near Tanjong Pagar MRT Station reflects S$2,503 per square foot on the building’s net lettable area (NLA) and 2.7 per cent net property yield. The property is on a site with a balance lease term of 88 years.

For 55 Market Street, which is on a site with 999-year leasehold tenure, AEW’s acquisition price works out to S$3,020 psf on NLA and 1.7 per cent implied annualised net property income (NPI) yield based on the NPI for the property for the quarter ended March 31, 2018.

“The entry yield is low,” noted a seasoned commercial property investor, “but then office buildings in Raffles Place, and moreover one with freehold/999-year leasehold tenure, are hard to come by.”

55 Market Street, formerly known as Sinsov Building, had its last major revamp 12 years ago. Some quarters reckon AEW could do another big spruce-up. BT understands that in the past, a strata subdivision plan was already in place for the property but approval for that plan lapsed. AEW could potentially make a re-application for strata subdivision, possibly with one strata title per floor, and sell space in the building on this basis.

Strata office sales are gaining momentum in Hong Kong and perhaps AEW envisages this could spread to Singapore. The latest property cooling measures here, which took effect on July 6, target the residential sector and could channel greater property investment demand towards the Singapore office sector.

The building’s NLA of nearly 71,800 sq ft comprises mostly office space. There is a small amount of retail space – in the basement (leased to Japanese restaurant Kiraku) and on the first floor (occupied by Italian restaurant Osteria Art).

Converting the second and possibly even the third levels to retail space could also be considered as part of a potential asset enhancement exercise, according to property consultants.

55 Market Street’s committed occupancy rate is just 87.9 per cent (as at March 31, 2018) but Mr Cheong of Savills says: “Having some vacancy in a building can be useful when one needs to do value adding like repositioning to bring in higher-paying tenants.”

At Twenty Anson, a relatively new building, the scope for asset enhancement is more limited. “Still, they could explore converting some of the existing 55 car park lots into lettable area, perhaps retail space, to boost the building’s income – but this may incur a development charge,” said a market watcher. “AEW could bring in a co-working operator, or try to do strata sales.”

AEW also owns Rivervale Mall in Sengkang (bought in 2015 and held through AEW Value Investors Asia II) and the ground-floor space at Prudential Tower in Church Street.

The Business Times, 21 Jul 2018

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