Saturday, January 8, 2011

NTUC Income closes in on stake in former Hitachi Tower

NTUC Income Insurance Cooperative is said to be nearing a deal to take a 49 per cent equity stake in 16 Collyer Quay, formerly known as Hitachi Tower, under a refinancing exercise for the 999-year leasehold office tower.


Sources say that the transaction values the office tower at about $2,365 per square foot on net lettable area (NLA) or about $661 million.


Goldman Sachs, which paid $811 million, or $2,900 psf, for the 37-storey tower in early 2008, will see its stake pared to 51 per cent.


A special purpose vehicle - controlled by Goldman Sachs and funds managed by the bank - which owns the office block yesterday also issued bonds to raise $420 million to partly refinance a loan facility taken out for the 2008 purchase.


Yesterday's bond issue was underwritten and arranged by ANZ, which is not a member of the Standard Chartered-led consortium of lenders that extended the financing facility that is set to run out later this month.


Two-thirds of the bonds were picked up by institutional investors, with the rest allocated to high net worth individuals.


16 Collyer Quay has a total NLA of about 279,560 sq ft, comprising about 257,800 sq ft of offices on the third to 37th levels and 21,760 sq ft of retail space on the first two levels. It also has 148 carpark lots in the basement.


Last year, Goldman Sachs funds made two major office divestments in Singapore - Chevron House (behind 16 Collyer Quay), which was disposed of at a loss, and DBS Towers along Shenton Way, which were sold profitably.


A fund managed by Deka Immobilien of Germany picked up Chevron House, which is on a site with a remaining lease of about 78 years, for $547 million or $2,083 psf on NLA. Overseas Union Enterprise bought DBS Towers, with a balance site lease of 56 years, for $870.5 million (around $970 psf).


As for 16 Collyer Quay, analysts say that it made sense for Goldman Sachs to have found a bluechip equity partner to facilitate its impending refinancing on the asset instead of making a total divestment and suffering a loss.


'It stands to ride on further increases in Singapore office capital values,' said an industry watcher.


Office capital values here are about 25-30 per cent below peak levels in 2008.


'A broad range of investors from Singapore and abroad are keen on the sector - including institutional players like Reits which are more yield-driven, private funds looking at both capital appreciation and income stories, and high net worth groups motivated more by capital appreciation,' said an office investment sales specialist.


Agreeing, a property consultant said that based on current pricing levels, investors are basing decisions on future rental income growth rather than strictly looking at yields on existing leases.


Property consultants are predicting an increase of about 15 per cent in Grade A office rentals in Singapore this year following a rise of about 20 per cent in 2010.


Market watchers say that NTUC Income's impending acquisition of a 49 per cent stake in 16 Collyer Quay marks a good start for office investment sales in 2011, following some $8.8 billion of such deals last year.


NTUC Income is no newbie to the office investment market in that location. It once held a stake in Chevron House (formerly known as Caltex House), along with CapitaLand and IP Property Fund Asia.


The trio sold the office tower to Goldman Sachs funds in 2007 for $730 million or $2,780 psf.

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