IOI Properties and CapitaLand Investment closer to acquiring One Raffles Place in joint bid

[SINGAPORE] IOI Properties Group and CapitaLand Investment (CLI) are now in exclusive due diligence for the acquisition of One Raffles Place, with a 50-50 joint bid submitted to owners OUE Reit and UOB.

Speaking on the sidelines of the Forbes Global CEO Conference in Singapore, Malaysia’s IOI Properties Group CEO Lee Yeow Seng said the offer was made about three months ago.

Previous reports had put the indicative pricing for the prime Central Business District property in the S$2.3 billion to S$2.4 billion range.

“Right now we have entered into exclusivity, and we are starting to do due diligence, and we are in the midst of discussing the final terms on the sales and purchase agreement,” Lee told The Business Times in an interview.

He added that the joint-venture (JV) structure incorporates operational flexibility should exit options be considered down the road. “There is a tag-along clause like all other JVs,” he said.

The proposed transaction marks a major strategic push by the Malaysian property giant to expand its Singapore commercial footprint beyond its current presence in Marina Bay and the Downtown Core.

Explaining the investment rationale, Lee noted that One Raffles Place “is actually a landmark building in Singapore”, and pointed to Tower One’s status as one of the three tallest buildings in the country.

He also highlighted the property’s long leasehold tenure, “which is almost equivalent to a freehold property”.

One Raffles Place comprises two office towers – one of 62 storeys and the other, 38 storeys – and a six-level retail podium. The total net lettable area is understood to be about 875,000 square feet.

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The development is on four land parcels with a mix of tenures. One plot has an 841-year leasehold tenure, which started in November 1985; the other three have 99-year leasehold tenures (two starting from May 1983, and the third from November 1985).

One Raffles Place is primarily controlled by OUE Real Estate Investment Trust (Reit), which holds a 67.95 per cent effective interest via registered owner OUB Centre (OUBC). UOB holds an 18.46 per cent direct beneficial interest in the property, alongside a 10 per cent stake in OUBC.

While long-term rejuvenation options are being evaluated, the group is assessing different plans, Lee noted.

“There is no fixed plan yet to redevelop the retail podium and Tower One... The first thing we will do after we acquire the assets is to improve on the tenancy mix in the retail podium.

“I think there’s a lot of demand for retail space in Raffles Place because there’s a big population of office crowds there, and a shortage of dining options; so we need to improve that and offer better options for the office workers downtown,” he said.

Growing portfolio

To support its rapidly expanding portfolio across Singapore – which includes IOI Central Boulevard Towers, South Beach and Shenton House, Lee is laying the groundwork for a capital-recycling exercise.

“Work began three to four months ago, and we (have) appointed DBS and Jefferies as main advisers,” said Lee.

The group has identified IOI Central Boulevard Towers and the office tower at South Beach as among the initial properties to seed the fund.

Together, these two assets carry a valuation of around S$6 billion, noted the group CEO. The group is planning to sell up to 40 per cent of its stake in both properties, so as to recycle capital of about S$2.4 billion, he explained, adding that the stakes will likely be sold to the likes of private equity or sovereign wealth funds.

Speaking on a panel at the conference earlier that morning, Lee addressed questions regarding balance-sheet leverage.

“Our game plan is not just to acquire blindly. Our plan is to actually securitise our assets by offering a Reit; and other than a public Reit, we are also looking at a private fund,” Lee told the panel, noting that the group holds close to S$12 billion worth of prime Singapore office space.

“By launching this kind of funds, we’ll be able to deleverage ourselves and give ourselves more room to actually acquire more assets in the future.”

On the timeline for a public Singapore Reit listing, Lee said that execution remains market-dependent.

“The listing of the Singapore Reit will depend on the timing of the market, depends on the market conditions, as well as whether that would make sense for the company,” he said, pointing out that liquid capital markets in the Republic offer multiple pathways to unlock asset value.

The group’s expansion comes as rising prime-office rents continue to boost its existing portfolio yields.

At South Beach, office rental rates have climbed from S$9 per square foot (psf) to about S$11 psf over two years, while average daily rates at JW Marriott Hotel Singapore South Beach have doubled from about S$400 to S$800.

At IOI Central Boulevard Towers, rentals have reached close to S$18 psf, compared with around S$8 psf when the land site was acquired in 2016, Lee pointed out.

Focus on Singapore

Beyond existing income-generating assets, the group is preparing for its next major capital commitment in the Downtown Core with the redevelopment of Shenton House, scheduled to begin in early 2027.

“What we’ll do is that we will tear down the whole old building... and then rebuild from scratch,” Lee said. “In terms of a timeline, it would take about three to five years from demolition to completion.”

He added: “In terms of funding, we will be funding it through a combination of internal funds as well as external borrowings.”

Asked during the panel session about the group’s recent acquisition “rampage” in Singapore, Lee attributed his aggressive expansion to deep personal familiarity and strong conviction in the city-state.

“I’m actually very familiar with Singapore... I’ve studied here for six years as a student, and I’ve worked here for two years.

“I have confidence in the governance, in the stable policy, and the strong government that Singapore has, and that is the underlying factor behind my confidence in Singapore.”

He remains clear about the group’s geographical priority, despite its growing presence across various real-estate segments.

“My focus is definitely on the prime CBD area,” Lee said.

“We are riding the wave – not just because of the tightness in supply of prime office space in the CBD area, but we are also riding the wave of the good policies introduced by the Singapore government.”

Looking ahead, “my personal target is to be one of the three biggest developers in Singapore”, Lee said.