UK group in exclusive due diligence for Manulife Centre

Singapore

BRITISH property group Chelsfield is understood to be effecting exclusive due diligence on Manulife Centre in Bras Basah Road with a view to purchasing the 11-storey commercial building.

The price is expected to be around S$550 million. This would reflect around S$2,300 psf on the building's net lettable area (NLA).The building has retail space on street level and offices above. Manulife Centre is being offered on a remaining leasehold tenure of about 96 years.

The deal, if it materialises, would be the biggest office transaction in Singapore so far this year - surpassing the S$516 million that US-based property fund manager AEW is paying for Twenty Anson in a deal entered into in late-June.

If Chelsfield picks up Manulife Centre, it would be the group's first acquisition in Singapore say market-watchers. Last December, Chelsfield's Asia value-add fund bought Provident Square, a neighbourhood mall in Hong Kong, in a joint venture with fund manager Pamfleet and two local partners for HK$2 billion (or US$257 million) from Fortune Reit. The deal was the first asset for Chelsfield's value-add Asia fund.

According to media reports, in January, Chelsfield acquired the ground floor of The Galleria mall at 9 Queen's Road in Hong Kong's Central commercial hub, from French luxury brand Hermes.

Chelsfield expanded its business to Asia in 2016 when it acquired the real estate division of Dymon Asia Group. Manulife Centre, with over 240,000 sq ft NLA is owned by a 60:40 partnership between Alpha Asia Macro Trends Fund (AAMTF) II and City Developments Ltd (CDL) repectively. The duo put Manulife Centre up for sale through an expressions of interest (EOI) exercise handled by JLL and Savills Singapore that closed in early June. That exercise is understood to have attracted a number of bids, which the owners evaluated before granting Chelsfield exclusivity for due diligence on the deal.

Manulife Centre is an attractive city-fringe location, flanked by Bencoolen MRT station on the Downtown Line and Bras Basah station on the Circle Line.

Anchor tenant Manulife Singapore, which occupies around 100,000 sq ft or about half the building's office space, is expected to relocate in the fourth quarter to Manulife Tower at 8 Cross Street - the former PwC Building which the insurer bought last year. Its lease at the Bras Basah building expires early next year.

Market-watchers reckon the space, when vacated, could be leased at around S$7 psf monthly if it went to a single tenant or a higher rental rate if it were leased to multiple tenants.

Formerly known as Plaza By The Park, the property has potential for asset enhancement works. For one, its NLA could be raised by scrapping excess car park lots. The retail space may also be expanded from just the ground level currently to the second level or even the third; retail space typically commands higher rents than offices.

Manulife Centre is one of three properties that CDL sold to its joint venture with AAMTF II for a total of about S$1.1 billion under a "profit participation securities" or PPS exercise in December 2015.

The other two assets are: 7 & 9 Tampines Grande, comprising a pair of eight-storey office buildings with retail units on the ground floor; and the Central Mall (Office Tower) in Magazine Road.

The joint venture also offered the Tampines office towers for sale through a separate EOI that closed on June 20. That exercise, conducted by Cushman & Wakefield, and JLL, is understood to have drawn a few bids. Observers expect the vendors to pick one or two parties to enter into due dilgence in the next stage.

The Business Times earlier reported the asking price for 7 & 9 Tampines Grande to be in excess of S$450 million or around S$1,565 psf on the NLA of nearly 288,000 sq ft. The property is on a site with about 88 years remaining lease. Key tenants include Hitachi, NCR and Daikin.

Observers expect CDL to buy back Central Mall (Office Tower). The PPS deal inked in late-2015 was structured with a five-year life span; the plan was for the AAMTF II-CDL JV to sell the three assets by the fifth year.

From the proceeds of the asset disposal, the first priority would be to repay bank borrowings, followed by repaying AAMTF II its capital, then a preferred return to AAMTF II amounting to a total internal rate of return of up to 12.6 per cent per annum. Only after this will CDL be repaid its capital investment.

Thereafter, whatever cash flows remain will be split between CDL and AAMTF II 60:40. This is the reverse of the ratio of their respective capital outlay and was aimed at incentivising CDL to maximise returns.

Manulife Centre is a 999-year leasehold property and Central Mall (Office Tower) is a freehold asset. What CDL sold in late-2015 with regard to each of these two assets was a 99-year leasehold tenure, with the group having reversionary interest of each property at the expiry of the 99 years.

For 7 & 9 Tampines Grande, which CDL developed on land bought at a state tender, what it sold under the PPS exercise was the remainder of the 99-year leasehold interest that began on Aug 20, 2007.

In the late-2015 PPS deal, CDL sold Manulife Centre for S$487.5 million, the Tampines Grande property for S$366 million and Central Mall (Office Tower) for S$218 million.

Data compiled by Savills Singapore shows that year-to-date, the value of Singapore private-sector office investment sales have reached S$1.17 billion.

Last year, the figure was about S$7 billion - bolstered by the deals at Asia Square Tower 2, PWC Building at 8 Cross Street and TripleOne Somerset.

AEW, the buyer of Twenty Anson, is increasing its presence here. Last year, it picked up the ground-floor space at Prudential Tower in ChurchStreet for S$18.95 million or S$3,315 psf; CBRE brokered that deal.

In 2015, it bought Rivervale Mall in Sengkang for S$190.5 million from CapitaLand Mall Trust; Colliers handled the sale.