PRIVATE equity giant Blackstone is understood to be stitching a deal to buy a majority interest in three Singapore properties owned by Sime Darby. It is expected to take a stake of about 75 per cent in entities owning the properties; the deal values the properties at about S$300 million. The yield, on an ungeared basis, is estimated at 6 per cent.
Sime Darby, the listed Malaysian plantation-based conglomerate, is selling the properties to reduce debt.
The properties are Sime Darby Centre at 896 Dunearn Road; Sime Darby Enterprise Centre, a light industrial building along Jalan Kilang off Jalan Bukit Merah; and Sime Darby Business Centre at 315 Alexandra Road (next to IKEA).
Of these, the biggest ticket item is Sime Darby Centre - an office and retail development on freehold and 999-year leasehold land parcels zoned for commercial use and with 1.8 plot ratio (ratio of maximum gross floor area to land area).
Part of this property used to house a BMW showroom; today, some of Sime Darby's Singapore offices are still located there but the retail-and-office building also has third-party tenants such as Scanteak, Cold Storage and ToTT Cooking Studio.
The other two properties are light industrial developments sitting on Business 1-zoned sites with 2.5 plot ratio; they are on sites with a balance lease of around 40 years.
Sime Darby's other properties on the island include 303 Alexandra Road, also known as Sime Darby Performance Centre and where the main BMW showroom for new cars is located, and 280 Kampong Arang Road in the Mountbatten/Tanjong Rhu area, housing a showroom for second-hand BMWs. Sources say the combined value of these five assets could exceed S$500 million.
One property in the deal, the one beside Ikea in Alexandra Road, also has a second-hand BMW showroom.
Sime Darby unit Performance Motors distributes BMWs.
The three properties will be income-generating for Blackstone - as Sime entities occupying space there can be expected to lease back the space upon completion of the deal.
Commenting on the various divestment options that Sime Darby would have considered, market watchers told The Business Times that given the weak equity markets, spinning off the properties into a real estate investment trust (Reit) would be challenging.
To ensure a successful Reit IPO, Sime Darby would have to divest the properties at a lower price to match, if not surpass, the current high yields at which Reits are trading. A more fundamental issue is that a portfolio of the three properties lacks scale for a Reit IPO.
Selling the assets to an existing Reit would also be difficult as Sime Darby's pricing is unlikely to be yield accretive for the buyer.
For Blackstone, a potential exit strategy for the three properties would be to spruce them up, boost their value and then offload them, possibly on a piecemeal basis. On the other hand, there could be a scenario of acquiring more properties to assemble a bigger portfolio for a potential Reit listing.
An industry observer said: "For the seller, the decision to sell a majority stake in three assets to Blackstone is probably the best solution - given current market conditions."
In February, Sime Darby said that it was aiming to raise RM1.8 billion (S$620 million) by selling assets in Australia and Singapore. President and group chief executive Mohd Bakke Salleh said that the monetisation programme would include commercial and industrial properties and that the company had identified 13 assets in Australia and three in Singapore.
The goal is to reduce Sime Darby's gearing ratio to 0.54 times by the end of the financial year ending June 30, 2016 from 0.61 times as at end-December 2015 - through this asset monetisation programme as well as a RM3 billion perpetual sukuk, or Islamic bond, programme.
For the second quarter ended Dec 31, 2015, Sime Darby posted a 38 per cent fall in net profit to RM273.3 million on the back of lower crude palm oil prices. Lower coal prices also hit the bottom line at the group's industrial unit.