OUE strikes a towering deal on Shenton Way
It snaps up DBS Towers One and Two for $870m as chairman Riady makes statement of intent
By EMILYN YAP
(SINGAPORE) Overseas Union Enterprise (OUE) has bought DBS Towers One and Two for $870.5 million or around $970 per sq ft of net lettable area, inking the largest commercial property deal in Singapore so far this year and perhaps since mid-2008.
The towers at 6 Shenton Way could turn into a mixed office-retail development, under one of several asset enhancement plans the property group is studying.
OUE announced its buy yesterday after the stock market closed. It is using both internal funds and debt to finance the purchase, which should be completed in September or October.
The seller is a Goldman Sachs real estate fund, which looks set to bag a nice profit - it had paid DBS $690 million or around $800 psf of net lettable area for the buildings in 2005.
The last time big office deals appeared in the market was in early 2008 before the global financial crisis erupted. These include the sale of the Singapore Power Building at Somerset Road for $1.01 billion or $1,836 psf of net lettable area.
Speaking to BT, OUE executive chairman Stephen Riady said that the purchase of DBS Towers One and Two is in line with his hopes to grow the company's asset size to around $10 billion in the next five to seven years. As at June 30, the company's assets stood at $2.93 billion.
The 99-year leasehold towers are valued at around $1 billion and they have a remaining lease of 56 years. Both are fully leased to tenants such as DBS Bank, Deloitte & Touche and Aviva.
OUE is considering various options for enhancing the buildings. 'We will not buy any asset and not do anything with it... We see a lot of value that we can create over the next few years,' Mr Riady said.
OUE could be creating more net lettable area at the towers. Even though they have a total gross floor area of around 1.24 million sq ft, the amount of income-generating space stands at just around 883,000 sq ft, he pointed out.
The first few storeys could be set aside for retail space, with offices taking up the rest of the towers, Mr Riady added. 'It's just one possibility. We have a few options which we are studying.'
Market watchers suggested that OUE could build a residential project on the site. The number of condominium developments at Tanjong Pagar has increased over the years, with recent launches such as 76 Shenton selling fast at prices that can exceed $2,000 psf.
Cushman & Wakefield managing director Donald Han said that OUE could consider redeveloping DBS Tower One - the older of the two blocks - into a residential-retail project. It could keep Tower Two as an office block but enhance it for more space.
He added that if OUE seeks approval from the authorities in time, it can even start launching the residential units for sale before 2012, when DBS starts vacating its space at the towers to move to Marina Bay Financial Centre.
Mr Riady said that asset enhancement works are likely to proceed in stages. In the meantime, OUE also stands to benefit from rising office rents at the towers as the leasing market continues to pick up.
According to CB Richard Ellis (CBRE) investment properties executive director Jeremy Lake, rents at DBS Tower One are around $5 psf while those at Tower Two are around $6-6.50 psf. They could go up by some 10 per cent by the end of the year given the recovery in the office market, he said. CBRE brokered the sale of the buildings to OUE.
On top of its property purchase, OUE had something else to cheer about yesterday. It posted a net profit of $16.7 million for the second quarter, reversing from a loss of $47.8 million a year ago.
Higher revenue from its hospitality business and contributions from the new Mandarin Gallery boosted earnings. The top line grew 81 per cent from last year to $51.7 million.
It also helped that OUE did not suffer any property impairment losses in Q2 - it was hit by such a loss of $52.2 million a year ago.
Earnings per share in Q2 was two cents, up from a loss per share of five cents last year. Net asset value per share was $2.28, increasing from $2.07 over the same period. OUE will be paying a dividend of two cents per share on Sept 15.
The counter lost three cents yesterday to close at $2.61.
Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.
DBS Towers: The seller - a Goldman Sachs real estate fund - bought the property from DBS for $690m in 2005. OUE aims to triple its asset size to around $10b
Posts
I would like to say that this blog really convinced me to do it! Thanks, very good post.
ReplyDeleteLos Angeles