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Ergo’s 50% stake in office building may be priced at $2,500 psf or more

CapitaLand will gain full ownership of One George Street if negotiations to buy German insurer Ergo’s 50 per cent stake in the 23-storey award-winning office building are successful.

One George Street

BT understands that the Singapore-listed property company is in talks to buy Ergo’s half-stake for about $2,500 per square foot of net lettable area - or higher.

At $2,500 psf, the building would be priced at just over $1.1 billion and the half-share CapitaLand would buy from Ergo would be worth about $560 million.

CapitaLand and Ergo, a member of Munich Re Group, own roughly equal stakes in the property through their equally owned Eureka Office Fund.

One George Street, completed in late 2004, was a redevelopment of the former Pidemco Centre in South Bridge Road.

It was one of three assets that CapitaLand pumped into the $875 million Eureka Office Fund in 2001. The other two were stakes in The Adelphi and Temasek Tower.

Earlier this year, CapitaLand and Eureka sold their stakes in Temasek Tower to Macquarie Global Property Advisors Group for $1.04 billion or $1,550 psf.

Temasek Tower is on a site with about 74 years of the original 99-year lease remaining.

CapitaLand Group CEO Liew Mun Leong revealed later that the group’s listed CapitaCommercial Trust (CCT) made an offer for Temasek Tower but it was less than Macquarie’s.

As for CapitaLand’s decision to buy the rest of One George Street, a market watcher said: ‘Maybe they see greater upside there because it was developed on a fresh 99-year lease, boasts big floor plates of about 30,000 sq ft and is closer to the Raffles Place area.’

Analysts reckon CapitaLand may be seeking full ownership of One George Street with a view to injecting it into CCT when it generates sufficient yields as leases are renewed at higher rates.

Agreeing, another industry observer said One George Street recently received a tenancy offer for a 4,000 sq ft space at a whopping $16.50 psf a month, but this was rejected by the owners, who may be eyeing even more.

‘When the present leases at One George Street were signed, the office market was weak,’ an analyst said. But there is upside now as leases are renewed and new leases signed, given the surge in office rents over the past two years.

Major tenants at One George Street include the Royal Bank of Scotland, Legg Mason, hedge fund manager Tudor, Man Financial and Lloyds.

At CapitaLand’s recent Q2 results briefing, Mr Liew said ‘the Singapore office sector will remain a core holding’ for the group but that it will reconstitute its portfolio by selling some office assets and investing in new developments.

One George Street has almost 450,000 sq ft of net lettable area and has won awards for its architecture and landscaping.

It has four skyrise gardens, the biggest of which is on the fifth floor and accessible to the public.

As for The Adelphi in the City Hall area, the Eureka fund initially had full ownership of the 999-year leasehold property but later sold some units, leaving it with 62 per cent of share values, according to a report in February this year.

There are plans for a collective sale of The Adelphi, which will provide Eureka an exit. The fund is expected to be wound up once the last of its three assets has been divested.

Source : Business Times - 23 Aug 2007

CAPITALAND has signed a conditional joint venture (JV) agreement with Azure City Co to develop a 1,200-unit high-rise condominium project in Ho Chi Minh City, Vietnam.

This brings CapitaLand’s pipeline of residential units in Vietnam to 2,800 homes, after venturing there in 2006.

CapitaLand will take a 75 per cent stake in the JV for $48.8 million.

Azure City Co, a local Vietnamese company involved in infrastructure and property, will hold the remaining 25 per cent.

The site is located in Ho Chi Minh City’s District 9 and CapitaLand said it will develop the project over the next three to four years.

CapitaLand Residential CEO Lui Chong Chee said: ‘With the country’s strong economic growth fuelling rapid urbanisation, we see demand for well-built and well-designed homes rising in both metropolitan cities like Ho Chi Minh City and Hanoi, as well as the other major cities in the country.’

This will be CapitaLand’s fourth residential development in Vietnam.

All four are in Ho Chi Minh City. The first is the 750-unit Vista in District 2 and CapitaLand says that the first phase, which was launched in June, has been fully taken up.

A 600-unit development in District 7 will be launched by end-2007.

CapitaLand also announced earlier this month that it will develop a 300-unit landed-housing develop with Azure City Co.

Source : Business Times - 23 Aug 2007

IN the first suspected case of a lawyer absconding with a client’s money to emerge since the rules surrounding such crimes were tightened last month, David Khong of Sim & Wong allegedly left town last weekend with $68,000 from the account of a client at a previous firm.

On July 15, rules came into force stipulating that two signatories are needed for cheques for amounts exceeding $30,000 to be drawn from clients’ accounts.

The rules, among other measures, were designed to prevent lawyers from mishandling clients’ money, and were actuated by an incident in June last year when lawyer David Rasif disappeared with over $10 million from clients’ accounts.

According to Peter Sim, a director of Sim & Wong, Mr Khong had closed his sole proprietorship, David Khong & Associates, and joined Sim & Wong only in June.

At his previous firm, Mr Khong had been working on a conveyancing transaction, and the work was transferred to Sim & Wong. However, the buyer’s 4 per cent deposit, worth about $88,000, was left in the old firm’s bank account, Mr Sim said.

When acting on behalf of a seller, a law firm typically holds the buyer’s deposit, which it releases to the seller after the transaction is complete.

Although David Khong & Associates had shut down, the firm’s bank account remained open. This was for administrative reasons, such as to pay ongoing bills, and is considered ‘normal procedure’, Mr Sim told BT.

Further, law firms usually place client money in fixed deposits, rather than current account, to earn higher interest. As the transaction was expected to close within weeks, the money was left at the old firm’s account, he said.

On Aug 20, Mr Khong sent an email message to Wendy Wong, a partner at Sim & Wong. In the email message, Mr Khong said he had absconded with $68,000 of the client’s money and left the country, according to Mr Sim.

The email message also mentioned miscellaneous debts, said Mr Sim. He said he had seen Mr Khong at work the previous Friday and noticed nothing untoward in his behaviour.

Sim & Wong has reported the matter to the Commercial Affairs Department of the Singapore Police Force, as well as the Law Society.

The police told BT yesterday that the report had been lodged, but said it was ‘inappropriate to comment on investigations’ and did not furnish further detail.

Meanwhile, ‘the Council of the Law Society has intervened on 21 August 2007 in the practice and client account of one David Khong Siak Meng as the Council has reason to suspect dishonesty in relation to a sum of about $68,000 on the part of this solicitor’, a spokesperson for the Law Society told BT.

‘The Council has appointed an investigative accountant to look into the matter. The Chief Justice has been informed of the matter. As the matter is currently under police investigation, the Law Society is unable to comment further,’ added the spokesperson, but said the society would issue a press release at a later date when appropriate.

‘We don’t know how or when he (Mr Khong) took out the money. Presumably he only needed one signature to do so,’ said Mr Sim.

Mr Khong’s confession came ‘out of the blue’, said Mr Sim.

Source : Business Times - 23 Aug 2007

100% stake represents yield accretion of 3.4% on annualised basis

INSTEAD of acquiring a 50 per cent stake, Macquarie MEAG Prime Real Estate Investment Trust (MMP Reit) is now taking full control of Renhe Spring Department Store in Chengdu, China, for 350 million yuan (S$70.3 million).

MMP Reit had in April this year announced that it would acquire a half stake in the 101,000 sq ft department store owned by Renhe Spring Group for 150 million yuan. The property, valued at 340 million yuan as at Dec 31, 2006, was re-valued at 350 million yuan as at July 31 this year.

On the increased stake, Franklin Heng, chief executive officer of the Reit’s manager, Macquarie Pacific Star, said: ‘This is a win-win arrangement…Not only will the yield accretion of this transaction for MMP Reit now be higher, Renhe Spring Group will also have more financial resources for its expansion and development projects in China, over which MMP Reit will continue to enjoy a first right of refusal.’

Renhe Spring Group’s pipeline of opportunities in China includes two other prime retail properties in Chengdu with combined gross floor area of more than one million sq ft.

The 100 per cent stake in the department store represents a yield accretion of 3.4 per cent on an annualised basis to MMP Reit’s distribution per unit, assuming full debt financing.

Related link: Click here for MMP Reit’s press release

Between 2005 and 2006, Renhe Spring Department Store registered about 23 per cent of year-on-year retail sales growth and, for 2006, its sales were 263 million yuan.

The 350 million yuan price tag comprises 310 million yuan in cash and the assumption of an interest-free debt of 40 million yuan owed to Renhe Spring Group and repayable over seven years. Renhe Spring Group will also continue to operate the department store for a fee of 0.8 per cent of the gross turnover.

Renhe Spring Group guarantees annual net distributable profits of 26.4 million yuan, which is secured for two years by the sum of 20 million yuan to be deducted from the consideration and held in escrow.

With the completion of MMP Reit’s acquisitions in Japan in May and assuming the acquisition in China is fully funded by debt, MMP Reit’s gearing will be 31.8 per cent.

MMP Reit comprises eight properties including a 74.23 per cent stake in Wisma Atria, a 27.23 per cent stake in Ngee Ann City, and six properties in Tokyo.

Source : Business Times - 23 Aug 2007

A SHORT-TERM office site at Scotts Road has attracted keen interest from developers.

With the close of its tender yesterday, 11 bids had come in for the 15-year leasehold site next to Newton MRT Station. The top bid, from Scotts Spazio, was $37 million, or $219.40 per sq ft (psf) of gross floor area. The next highest bid was $31.2 million.

Consultants had predicted that the 1.04ha site would draw top bids of $25 million. Among the bidders yesterday were Sim Lian Land, United Engineers and Soilbuild Group Holdings.

The plot can host a four-storey block with a total floor area of 168,627 sq ft. It was offered by the Government last month as a temporary solution to the current shortage of office space in Singapore.

The Government had said that if the site received a good response, other similar plots could be released.

Mr Li Hiaw Ho, executive director of CB Richard Ellis Research, attributed the popularity of the site to its shape and size as well as the amenities nearby.

‘Developers seemed undaunted by the short tenure of only 15 years for this parcel,’ he noted. ‘The strong showing and level of bids submitted reflect developers’ general optimism in the light of the current tight supply of offices in prime locations.’

Mr Li said the break-even cost of the site is likely to be about $500 psf per plot ratio, given a 12 per cent yield based on a gross monthly rent of $6.50 psf.

Source : Straits Times - 23 Aug 2007