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It pays $212m for 50% stake in properties next to Clifford Pier

OVERSEAS Union Enterprise (OUE) has taken back full control of Overseas Union House and Change Alley Aerial Plaza ahead of tomorrow’s closing of the government tender for the coveted Clifford Pier and Customs Harbour Branch sites next door - which it is also interested in.

In a statement on Saturday, OUE said it has bought the remaining 50 per cent in Clifford which owns Overseas Union House and Change Alley Aerial Plaza - two side-by-side properties in Collyer Quay - from UOL Group for over $212.3 million.

OUE, now controlled by OUE Realty which is a joint venture between Indonesia’s Lippo group and Malaysian tycoon Ananda Krishnan’s vehicle Usaha Tegas, had earlier this year transferred the two properties to Clifford for $73 million under a joint venture (JV) agreement with UOL. Clifford was a JV formed between OUE and UOL. UOL had under the JV agreement paid about $66 million in cash for its 50 per cent stake in Clifford.

In its statement on Saturday, UOL said it will pocket a gain of about $146 million from the sale of its Clifford stake. UOL will also get back the $7.3 million - together with a 5 per cent per annum interest - in shareholder loans it had earlier granted to Clifford under the JV agreement.

The consideration of $212.3 million was arrived at on a ‘willing-buyer and willing-seller basis through a closed bidding process’, said UOL and OUE.

The net tangible asset value of the 50 per cent stake in Clifford was $66.2 million as at Sept 30.

OUE said that in putting in its bid, it took into account the valuation of an independent professional valuer estimating the current open market value of Overseas Union House and Change Alley Aerial Plaza to be about $262.9 million. This is net of estimated development charges and differential premium for an increase in plot ratio, an upgrade to a fresh 99-year lease and the alienation of a portion of State land.

The remaining lease on Overseas Union House is about 61 years, and for Change Alley Aerial Plaza, it is 63 years. OUE is planning to redevelop Overseas Union House into an 18-storey office building with a gross floor area of about 46,500 square metres, due for completion in 2009. Change Alley Aerial Plaza will be conserved.

OUE also confirmed in its statement on Saturday that it is thinking of submitting a bid for the mixed-hotel site next to Change Alley Aerial Plaza. The tender for the site - comprising Clifford Pier, the Customs Harbour Branch building as well as two adjoining land parcels - closes tomorrow.

Separately yesterday, OUE said that OUE Realty - which owns more than 70 per cent of OUE - still intends to maintain OUE’s listing status. To that end, OUE will work with OUE Realty on steps to raise the free float of OUE to at least 10 per cent of OUE’s total number of shares and to ensure the shares are held by at least 500 members of the public so as to meet SGX’s listing requirements. OUE also said it has submitted an application to SGX for an extension of time to meet these requirements.

Source : Business Times - 16 Oct 2006

The firm retains 800 workshops, puts off decision on future of two subsidiaries

JTC Corporation will choose a mix of trade sales and a real estate investment trust (Reit) to sell a sizeable chunk of its industrial properties earmarked for divestment.

But 800 workshops housing car repair shops and other small businesses will be retained by JTC, much to the relief of the firms, which feared that having private-sector landlords could lead to rent hikes and unfavourable lease terms.

JTC also put off a decision on the future of two JTC subsidiaries - business park developer Ascendas and project consultancy Jurong International Holdings. It said these were more complex, given their regional operations.

The announcement yesterday comes almost a year after JTC announced plans to divest itself of half its portfolio of factories and warehouses.

The move, which involves assets worth billions of dollars, is part of efforts by the Government to get out of market segments in which there is active private-sector participation.

Property firms welcomed the sale as they reckon it will lead to a more open and vibrant market.

But small businesses expressed concerns that rental and business costs may rise as private-sector landlords are less likely to offer special rebates to help them in bad times.

Companies in the JTC workshops, initially slated for sale, were particularly worried.

These outfits, many of which are sole proprietorships, own the premises in which they operate but not the land the workshops are built on.

This gives them little bargaining power with their landlords as it is hard for them to move their operations, said Mr Lawrence Leow, president of the Association of Small and Medium Enterprises.

Being generally smaller, companies in the workshops are more vulnerable to rental hikes, said a Knight Frank spokesman.

Alternative locations, he said, are also hard to find as the firms - many are car workshops - need a drive-in facility.

‘Also, the customers of many of these workshops often remember only the location and not the name of the company,’ he added.

Said Mr Leow: ‘This is really good news and I’m glad that JTC really looked into our inputs very positively and has made changes.’

He said the association has been voicing its concerns to JTC, culminating in a dialogue session in mid-July.

With the workshops excluded from the sale, JTC said the properties it is divesting have a total net floor area of 1.7 million sq m.

They consist mainly of flatted factories, ramp-up and stack-up factories, a warehouse building and three office blocks in the International Business Park and the Changi Business Park.

JTC gave little further detail of its plans except that it will take at least another 18 months to complete.

It said it had decided on a combination of trade sale and Reit after consulting with experts who proposed the mixed approach.

The company added that it will engage investment bankers and real estate firms to work out the details of the deal.

JTC declined to comment on earlier reports quoting sources that said $1.5 billion to $2 billion of the assets will be put into a Reit which will be launched in an initial public offering next year.

Industry watchers said a Reit makes a lot of sense when JTC is divesting so many assets.

But the trade sales may be due to firm offers received by JTC for some of its more valuable properties.

Mr Leow said the JTC properties should not be sold to an existing Reit but a new one, to ensure competitive rentals.

Source : Straits Times - 14 Oct 2006

It intends to divest some of its high rise ready-built industrial property

JTC Corporation said yesterday that some of its high-rise ready-built industrial property will be divested into a real estate investment trust (Reit), making it the first statutory board to go down the Reit route.

The announcement confirms an earlier report in The Business Times quoting market sources saying that JTC would divest properties into a Reit.

JTC said properties with net floor area of about 1.7 million square metres - comprising mainly of flatted factories, ramp-up and stack-up factories, three multi-tenanted business park buildings and a warehouse building - will be sold via a combination of a Reit and trade sale.

‘The decision to go for a combination of a Reit and trade sale is to ensure competitiveness of the industrial property market post-divestment,’ JTC said.

It also wants to ‘ensure price stability while achieving fair market value for the properties divested’, it said.

JTC will look to hire consultants and market analysts over the next few months to assist with the divestment process. It envisages the divestment exercise will take at least 18 months to complete.

As to which properties will go where, a JTC spokesman said: ‘The eventual portfolios to be divested via a Reit and trade sale have yet to be finalised.’

But JTC, which first announced plans to consider selling chunks of its property portfolio and two subsidiaries last November - business park developer Ascendas and project consultancy Jurong International Holdings - so it can focus on more of a strategic role, will not be selling 800 workshops.

The statutory board will retain these workshops, which are located all over the island and mostly occupied by small and medium enterprises in engineering-related trades, ‘to facilitate long-term estate planning’. The JTC spokesman said: ‘At this stage, we do not have definite plans for the workshops.’

As to the fate of Jurong International and Ascendas, JTC says it is ’still studying the future plans and divestment options’ and details will be announced once a decision is made.

The JTC spokesman told BT: ‘Given the large and complex portfolios of the two companies, more time is needed to study the options.

‘The divestment decision needs to be carefully considered to ensure that the two companies continue to have long-term strategic value as well as to be able to expand and grow their capabilities.’

Foreign banks UBS and JP Morgan and property consultants Colliers International and Chesterton International advised JTC in the first phase of its divestment exercise.

Competition to advise JTC for the second phase of the exercise will be intense, market players say, as the parties involved stand to earn substantial fees from a successful initial public offer of a Reit and trade sale.

Singapore’s Reit market is seen as a major success in Asia, with 13 Reits, owning assets across various property classes, currently listed.

Market players see a listing of a Reit by JTC, which could have properties worth more than $1.5 billion, as competing for investor attention and funds against existing industrial Reits.

These industrial rates are namely, Ascendas Reit, Mapletree Logistics Trust and Cambridge Industrial Trust.

Source : Business Times - 14 Oct 2006

S’pore developers are part of global scramble to invest, manage and design new retail malls sweeping Asia

THERE’S nothing like a new shopping mall to give a new buzz and sense of purpose to one’s weekend. Last weekend, hundreds of thousands of Singaporeans flocked to Vivocity to check out the biggest mall - over one million square feet - in the city.

However, if you think that it’s a uniquely Singapore phenomenon, think again. It’s a scene that will be played out over and over again in Asia in the next few years, as mall fever sweeps through this region.

With an upcoming six million sq ft plus of retail space to be built in Singapore and close to 11 million sq ft of retail space planned in Jakarta over the next two to four years; the world’s biggest mall (currently anyway) being built in Dubai, and hundreds more to open in China each year; not to mention malls being planned in India, Korea and even Japan, there’s no halting the retail train that’s chugging full steam ahead in most Asian countries.

What’s uniquely Singapore, however, is the role that it will play in the next wave of Asia’s malls. Major players like CapitaLand are already investing in 30 malls in China and 50 malls in India in the next few years, while DP Architects has won high-profile bids to design iconic malls like the 12 million sq ft Dubai Mall - does this mean that the Asian mall phenomenon is going to have the Singapore stamp on it?

The lessons learnt from developing Singapore’s malls are definitely being applied in projects in other countries, says architect Tai Lee Siang, a director at DP Architects, a firm which has made its name as a specialist in malls. ‘We pride ourselves, for example, for designing Singapore’s first atrium mall - People’s Park Complex, in the late 60s and 70s - the mother of atrium style shopping centres,’ he says.

This was the model throughout the 80s, until a breakthrough in the 90s, says Mr Tai, with the development of Bugis Junction which revived interest in the street shopping concept, departing from the inward-looking shoebox model.

‘That was a new typology for shopping centres,’ he notes. And a model that is being adopted for the Dubai Mall, for example, which is an expansion of the street and precinct concept. ‘The Dubai Mall is so huge that it needs to establish sub-themes, with different products like high fashion, or IT or jewellery clustered together.’

And from the incorporation of streets into a sprawling mall system, DP has now moved on to another new typology - that of building upwards, which is the design for the upcoming Far East Organisation’s Orchard Central. ‘Given that Singapore is so dense, this looks like the next model. And this can be adopted in other Asian cities which share similar ground constraints and high land cost.’

Besides architects bringing Singapore models of malls overseas, foreign developers do come specially to Singapore to check out our malls here, to get ideas about design, management and retail products.

The software

If the ‘hardware’ - design and building know-how - of Singapore’s malls is being exported, then there’s also ’software’ of mall management - which is the expertise that CapitaLand is bringing to the regional market.

‘We weren’t a big player four, five years ago, but when we created the CapitaMall real estate investment trust, we found that we could have a certain value proposition to offer our investors, shoppers and tenants,’ says Pua Seck Guan, CEO of CapitaLand Retail Limited.

The value proposition is the combination of the company’s capital management and retail management skills. ‘These are the key ingredients which are important to the growth of a mall business,’ he stresses. ‘A mall requires huge capital, and then there’s the need to know how to manage it once you’ve invested millions - from operations to marketing and so on.’

>From owning just a few malls in 2001 to 16 in Singapore, CapitaLand realised that it had a competency that could be exported overseas, says Mr Pua. CapitaLand’s Asian portfolio now has over 50 malls encompassing more than 23 million sq ft of retail space, which makes it one of the largest retail players in Asia. Its total asset value is over US$8 billion in Singapore, China, India, Malaysia and Japan. To criticisms about the homogeneity of some of its malls, Mr Pua points out that a mall manager’s job is to bring a shopping concept to the door of the resident. ‘A mall provides service to the local community and residents, so we bring something like Cafe Cartel, for example, and grow it in all our malls.’

And given their partnerships with Singapore-grown brands like BreadTalk, Charles and Keith, Old Chang Kee and Bee Cheng Hiang, CapitaLand sees itself as providing the avenue for these brands to grow in China and India. ‘Given our position, we can bring Singapore brands overseas, and also bring in more Indian and Chinese brands to the local market; from India to China and vice versa. That’s our value-add - this cross-fertilisation of brands across Asia,’ says Mr Pua. Some 10 to 20 per cent of its tenants in China are currently Singapore brands.

A growing pie

Singapore mall designers, owners and managers aren’t the only ones chasing Asia’s mall boom however. The high potential of growth in Asia has attracted the US’s largest mall player, Taubman Centres Inc, which could potentially build a mall a year in Asia. It entered the fray two years ago, and the first Taubman Mall is slated to open in Songdo, Korea, in 2009.

Taubman’s Asia president Morgan Parker is quick to point out that Taubman’s business is different from CapitaLand’s. ‘Fundamentally, we have different businesses, but we share the same space,’ he notes. ‘And we’re looking at different markets in Asia.’

Taubman is eyeing markets like Korea and even Japan now, while keeping a long-term view on China. Mr Parker explains the financial rationale for this cautious approach to China: ‘There’s no clear financial return on the mall business at the moment. The current returns are 6 to 8 per cent of cash-on-cash return. Which means that if you build a mall for $100, the income for the first year is $6-$8.’

Using that matrix to calculate financial returns means it’s not attractive enough for Taubman to go into China now, points out Mr Parker. There are examples of success, like CapitaLand’s Raffles City in Shanghai, he concedes. ‘But it’s a messy market with a lot of local and inexperienced developers, on the whole,’ he adds, while the Korean and Japanese markets are more ‘rational’ with lower levels of supply and higher pent-up demand.

Part of the push for Taubman to come to Asia was because of its investors - ‘there’s a lot of institutional capital looking to invest in real estate’ - and also its US and European retail customers, most of which are the major labels keen to expand their presence in Asia. ‘We’re considered a pioneer in the industry, having developed 80 million sq ft of retail space in the States,’ says Mr Parker.

Founded in 1950, Taubman is listed on the New York Stock Exchange as a real estate investment trust. It currently owns 22 malls covering 25 million sq ft in the US - malls like the Beverly Center in Los Angeles, Shorthills Mall in New Jersey, Millenia in Orlando, Cherry Creek in Denver, and The Pier in Atlantic City.

‘We have the most successful portfolio in America. But we realised two years ago that we wanted to supplement that. The macroeconomic story in Asia is attractive, with Japan, Korea, China and India making up four of the world’s top economies. And they have a young demographic and increasing levels of expenditure,’ he adds.

In Singapore, Taubman Asia was to set up a top-end mall in Marina Bay for the resort proposed by Keppel Land and Harrah’s Entertainment, which failed to win the bid.

And if you think Singapore is already overrun by malls - with the recent opening of the one million sq ft Vivocity - investors like Taubman says not so. ‘Singapore is a market we like a lot,’ says Mr Parker. ‘First, there’s a regulated supply of commercial real estate, which is exactly the opposite of China. And this gives investors confidence to invest millions to build an expensive mall.’

Singapore has a great shopping culture as well, he continues, while having a low retail floor space per capita at 15 sq ft per person. In the US, it’s 35 sq ft per person. Which makes Singapore undersupplied with retail. ‘All the top retailers are already here as well, so the challenge is to have them expand in the market,’ he says.

A new industry

What the various industry players agree on is that the retail industry - centred on the mall - is a new, emerging industry in Asia. ‘There’s no downturn in sight - not by any imagination,’ says Simon Dickie, regional director for retail at Jones Lang LaSalle in Indonesia, who adds that going to the mall is a lifestyle thing in Asia where services like food and beverage play a much more prominent role. The upcoming Grand Indonesia in Jakarta, for example, will have 35 per cent of its space dedicated to F&B, when the usual share is about 10 to 15 per cent.

‘The shopping mall industry is a dynamic business with different opportunities all the time,’ says DP Architects’ Mr Tai.

Mr Parker points out: ‘About 40,000 people attend an international shopping conference in the US, while only some 1,000 attended the International Council of Shopping Centres meeting held here recently. So the industry as we know it is just emerging, and companies like ours want to help that grow.’

‘The mall scene has changed dramatically over the past five years,’ points out Yannick Kennel, general manager of FootFall Asia, which tracks pedestrian traffic.

‘Mall operators have added more dimensions: entertainment, meeting/social places, new eating experiences and new retail concepts, thanks to the increase in new mall construction around Asia which upped the competition,’ he says.

This development is very beneficial to the shoppers, as they are provided with intriguing forward-thinking new architecture design, new concept stores, new lifestyle brands, more entertainment activities, overall creating malls as a destination by itself.

It’s not even a question of where you can find a better retail experience - in Asia, the US or Europe. ‘It’s interchangeable, with each learning from each other. In Asia, by virtue of having cities with huge populations and scarce land, it means we have more mixed use projects. We take it for granted, but it’s quite a new concept in the US which is taking root,’ says Mr Parker.

But for now, Singapore is ahead of the game in Asia, believes Mr Kennel. ‘Maybe not in pure square foot terms but definitely in their very professional and long-term approach to mall management. And Singapore maintains its reputation for being a shopper’s destination by offering renewed concepts and professionally managed properties.’

Source : Business Times - 13 Oct 2006

New building on Overseas Union House site; Change Alley Aerial Plaza to be conserved
The long-awaited redevelopment of two ageing landmark properties in Collyer Quay is finally going ahead.

Sources say United Overseas Land (UOL) and Overseas Union Enterprise (OUE) will begin work on redeveloping their Overseas Union House site early next year into an 18-storey office tower.

In addition to tearing down Overseas Union House and redeveloping the site into a new office tower, BT understands that UOL and OUE will conserve the next-door property - the Change Alley Aerial Plaza tower.

The distinctive building, with a circular structure at the top that once used to house a revolving restaurant, will be ideal for food and beverage outlets, suggest market watchers.

And the landmark overhead bridge across Collyer Quay, lined with shops and eateries, will also be refurbished and retained.

The total development cost - including construction, development charges and the premium payable for upgrading the lease of the site to the original term of 99 years - may come to around $400 million. When completed around 2009, the value of the development could reach $500 million or more, suggest market watchers.

The new office development on the Overseas Union House site is expected to have more than 20,000 sq ft of column-free office space per floor.

UOL and OUE have equal shares in the company that owns Overseas Union House and Change Alley Aerial Plaza.

BT understands that UOL and OUE secured provisional permission from the authorities for a commercial development on the site on Aug 30, allowing them to lock in the development charge rates prevailing at that time. On Sept 1, DC rates for commercial use in the location were increased by 9.1 per cent.

UOL and OUE will be applying to the authorities to upgrade the lease on the site to the original 99 years. The land which Overseas Union House sits on has a remaining lease of about 61 years while the Change Alley Aerial Plaza site has 63 years left on its tenure.

The two plots have a combined land area of about 80,000 sq ft.

Market watchers say it makes sense for UOL and OUE to redevelop their site into an office project because of the acute shortage of prime Grade A offices in the Central Business District. The development of Overseas Union House and Change Alley Aerial Plaza, will help complete the loop of attractions around Marina Bay, as envisioned by the Urban Redevelopment Authority (URA).

The other attractions in the belt include the Business & Financial Centre, The Sail @ Marina Bay condo, and the integrated resort which will include a casino, convention facilities, mall, hotels and a museum.

Analysts also expect UOL and OUE to team up to make a credible bid at next week’s state tender for a site next to Change Alley Aerial Plaza tower - comprising the Clifford Pier/Customs Harbour Branch buildings as well as two adjoining land parcels.

‘If UOL-OUE clinch the site, they would be in the best position for a comprehensive development of the location,’ says a market watcher.

The site being offered by URA has a maximum gross floor area of 107,639 sq ft - at least 40 per cent of which must be for hotel use. The rest can be used for retail, dining, entertainment and public attractions. The tender closes next Tuesday.

Under the two-envelope system, bidders will be required to submit concept proposals and tender prices. Only proposals that get the URA’s approval will enter the next stage of the competition - which will be based solely on price.

Source : Business Times - 12 Oct 2006