Perennial-led consortium to sell Chinatown Point for S$520m

Singapore

ACTIVITY in the commercial property investment segment appears to be picking up, with Chinatown Point mall becoming the latest to change hands this year.

A consortium of investors led by Perennial Real Estate Holdings and its consortium of investors is selling its stake in Chinatown Point for S$520 million in total, the group of listed companies announced on Monday morning.

This includes the divestment of their entire interests in the retail mall, and four strata office units in the building, an integrated development within Singapore's central business district (CBD).

In July 2010, Perennial syndicated a consortium of investors to form Perennial Chinatown Point LLP (PCP LLP) to acquire Chinatown Point for S$250 million. A major redevelopment exercise costing over S$91 million followed.

The buyer is PAR Chinatown Point, a wholly-owned vehicle of a fund managed by Pan Asia Realty Advisors (Singapore), which is, in turn, a joint venture between Mitsubishi Estate Co and CLSA.

Perennial said the transaction is in line with its active capital recycling strategy to rebalance its portfolio, enhance financial flexibility and maximise shareholders' returns.

The deal value includes S$225 million in cash for the issued shares, and the assignment of shareholder loans.

The transaction price of S$520 million translates to S$2,450 per square foot on total net lettable area of the property.

Perennial is the largest investor in Chinatown Point, with a 50.64 effective interest; its proportionate net proceeds is expected to be about S$125.3 million, subject to final adjustments.

SPH, which publishes The Business Times, and FPTM, are among the other private investors.

In a separate regulatory filing, SPH said it expects its share of gain to be about S$10 million.

Subject to certain conditions, the transaction is expected to close on or around June 6.

Pua Seck Guan, chief executive of Perennial, said: "The transaction is a testament to Perennial's ability in identifying quality assets, creating value via enhancement initiatives, and ultimately unlocking value via divestment for all stakeholders."

Separately, Perennial noted that it expects to post a first-quarter net loss for the three months ended March 31, primarily due to weaker performance of its newly operational assets, and higher financing costs.

Nonetheless, the group expects to turn profitable in Q2 on completion of this disposal. Further details of the group's performance will be disclosed when it releases its Q1 results in May, it said.

Karamjit Singh, senior consultant at JLL, said the flurry of activity in the commercial market is driven by optimism in the office rental market. "While office space rents have moved up over the last two years, the consensus is they have yet to peak. Potential withdrawal of stock in the form of old office buildings for redevelopment in the CBD could also add to the momentum. This is in reaction to the latest plans announced by the Urban Redevelopment Authority to rejuvenate the CBD."

Desmond Sim, CBRE's head of research for South-east Asia, noted that while investment deals (excluding residential) came in at about S$15.2 billion last year and is expected to remain flat for the year ahead, there is still room for growth in the sector, especially with a couple of deals brewing.

Indeed, Oxley this month announced that it received an expression of interest to acquire Chevron House for S$1.025 billion.

Most recently, M+S also placed DUO office tower on the market, with an asking price of S$1.6 billion; Frasers Property said it is in talks to sell Frasers Tower.

Added Mr Sim: "The Singapore market presents stability, with a very good capital preservation story. At the end of the day, there is ample capital looking for investments in Singapore.

He added that although Singapore does not "provide super-normal profits, there is room for growth with stability as the main plot... We also see new entrants in addition to the usual suspects".

DBS analyst Derek Tan noted that transaction volume in the commercial property space is expected to remain robust, with an upward trend in sight. The key reason is that these investments are purchased by funds, and there is demand to deploy capital in Singapore as the commercial market is generally quite liquid, he told BT.

"Singapore real estate is generally seen as a store of value across the region, due to its stable government and stable currency."

While the entry yield of 2 to 3 per cent is low because of the lack of new supply, yields are expected to rise in tandem with rental increases over a three-year horizon, he said.

Added Mr Tan and fellow DBS analyst Rachel Tan: "We estimated the exit price to imply an exit yield of 4.3 to 4.5 per cent, which is probably still fairly decent in today's environment, where the strong demand for income-producing assets in Singapore has brought commercial yields down to the 3 to 4 per cent yield level."

DBS has issued a "buy" rating on Perennial, with a target price of S$0.83. Perennial shares closed at S$0.665 on Monday, up 21/2 Singapore cents. SPH shares closed at S$2.48, up one Singapore cent.

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