Perennial Real Estate Holdings is said to be leading and syndicating a consortium that is close to inking a deal to buy AXA Tower – the 50- storey distinctive circular office building opposite Tanjong Pagar MRT Station – from BlackRock.
The price is about S$1.18 billion, translating to roughly S$1,750 per square foot (psf) based on the existing net lettable area (NLA) of nearly 675,000 sq ft. AXA Tower is on a site with a balance lease term of about 66.5 years.
CBRE and JLL marketed the property last year for sale by private treaty.
Based on AXA Tower’s current rental income, the purchase price is said to reflect a net yield of 4 per cent. Located at 8 Shenton Way, the building is around 90 per cent occupied – pointing to income upside for the buyers from leasing out the balance 10 per cent as they ride on the ongoing recovery in the Singapore office rental market.
Moreover, the Perennial-led consortium is likely to spruce up and reposition the 29,177 sq ft retail space on Level 1 and the basement of AXA Tower – which should enable it to fetch higher rentals for the space.
The rest of AXA Tower may also receive an interim spruce-up, while the Perennial consortium awaits the right time to embark on a development to tap unutilised plot ratio for the property that would yield additional gross floor area (GFA) of about 212,100 sq ft, say market watchers.
AXA Tower’s existing GFA is about 1.03 million sq ft, reflecting around 8.7 plot ratio (ratio of GFA to the land area of 118,230 sq ft).
The GFA can be raised to 1.24 million sq ft, translating to a total plot ratio of 10.5 as allowed for the site under Urban Redevelopment Authority’s Master Plan 2014 – inclusive of bonus plot ratios for the property’s substantial site area and proximity to Tanjong Pagar MRT Station.
It is envisaged that the additional 212,100 sq ft can be built in the form of a low-rise block with a large floor-plate – on an undeveloped part of the site facing Maxwell Road. While most investors would think the best use for this additional space would be retail, the planning authority is said to have advised that it should not be retail.
The consortium could hence consider building more office space, or simply wait until such time when the authorities consent to it developing more retail space,
Factoring the site’s redevelopment potential, the S$1.18 billion to be paid for AXA Tower works out to around S$1,060 psf of potential gross floor area (based on the 1.24 million sq ft maximum GFA). This unit land price factors in the differential premium that would have to be paid to the state in exchange for tapping the unutilised plot ratio.
AXA Tower has about 600 carpark lots in the basement.
Seller BlackRock owns AXA Tower through MGPA Fund II. The asset management giant completed its acquisition of MGPA, formerly known as Macquarie Global Property Advisors, in 2013. MGPA Fund II bought the office tower, then known as Temasek Tower, in March 2007 for S$1.039 billion or S$1,550 psf of NLA.
While BlackRock’s exit price represents just a modest capital appreciation over an eight-year holding period, analysts point out that the fund would have reaped recurring net property income, in the order of S$40 million to S$50 million a year from rentals. Moreover, being denominated in US$, the fund would benefit on exiting the investment from the appreciation of the Singapore dollar over the period, said a market watcher.
Industry observers reckon the consortium Perennial has syndicated could include some of its familiar partners in its earlier property acquisitions as well as some new names.
Perennial’s major shareholders include Kuok Khoon Hong, Ron Sim, Wilmar International and Pua Seck Guan. It debuted on the Singapore Exchange mainboard in late December 2014, following a reverse takeover deal involving Catalist-listed night-spot operator St James Holdings and the acquisition of all the units in Perennial China Retail Trust.
Perennial Real Estate Holdings holds a 50 per cent stake in the Capitol Singapore development in addition to majority stakes in TripleOne Somerset (an office and retail development diagonally behind Somerset MRT Station) and the Chijmes retail asset along Victoria Street, Bras Basah Road and North Bridge Road.
The group’s China projects include the Chengdu East High Speed Railway Integrated Development and Xi’an North High Speed Railway Integrated Development.