Private Funds May Offer More Competitive Prices For Office Bldgs

Office Finder Team

November 16, 2021

Singapore

SINGAPORE – Private funds and other commercial property buyers may be the best entities in holding office buildings as these are more likely to offer more competitive pricing because of greater borrowing flexibility, reported The Business Times on Tuesday morning (16 November, SGT).

For instance, in September, Rivulets Investments acquired 61 Robinson Road, a 20-storey office building within Singapore’s central business district (CBD), for S$422 million.

The price forked out by the local private equity fund management group translates to about to S$2,973 psf based on the property’s post-renovation net leasable area (NLA) of 141,958 sq ft, or S$2,887 psf based on a higher NLA of 146,174 sq ft if multiple units on the same levels are reconfigured as a single unit.

Rivulets targets to accomplish a net yield of at least 3 percent on a stabilised basis for the acquisition of 61 Robinson Road, which stands a site with a remaining lease term of around 74.5 years.

In comparison, CapitaLand Integrated Commercial Trust (CICT) holds Grade A office buildings in Singapore’s CBD, namely Capital Tower (CT) and Square Tower 2 (AST2). For the first half of the year, they posted net property income (NPI) of S$26.3 million and S$39.1 million respectively.

CT and AST2 have a remaining land tenures of 73 years and 85 years respectively.

At the end of last year, CT was valued at S$1.389 billion (about S$1,890 psf on NLA), while AST2 was valued at S$2.128 billion (around S$2,739 psf on NLA). Based on their annualised NPI for H1 2021, their respective yields were 3.8 percent and 3.7 percent.

Based on the above figures, both of CICT’s Grade A offices seem to be priced lower than 61 Robinson Road in terms of yield and psf.

While CICT’s units are trading at a slight premium compared to its book value, other REITs that own prime CBD office properties in Singapore are selling at discounts to net asset value (NAV). This implies investors may be applying a material discount to appraise their office properties.