Article Detail

CLSA Unit will do due diligence on former SIA Building

23 May, 2017

CLSA Capital Partners is said to have been selected to do exclusive due diligence for the purchase of 77 Robinson R

oad.

The pricing is believed to be above S$530 million, or slightly above S$1,800 per square foot based on the net lettable area (NLA) of nearly 293,270 sq ft.

Formerly known as Singapore Airlines (SIA) Building, the 35-storey office tower is on a site with 99-year leasehold tenure that started on Feb 18, 1994; the balance lease tenure is about 76.5 years.

What is interesting about CLSA being picked for exclusive due diligence is that it was an earlier CLSA-managed fund that had sold the office tower to the current owner - SEB ImmoInvest fund, which used to be managed by the former SEB Asset Management, which was acquired by Savills Investment Management in September last year. The earlier CLSA fund had sold 77 Robinson Road in April 2007 for S$526 million or S$1,783 psf based on a slightly larger NLA of around 295,000 sq ft for the property at the time.

Word on the street is that in a recent expression of interest exercise for 77 Robinson Road, at least one other party - tipped to be either CapitaLand or its unit CapitaLand Commercial Trust (CCT) - offered a higher price than CLSA, apparently around S$1,850 psf. However, it seems CLSA was the only party agreeable to the vendor's preference for an outright asset sale instead of a sale of shares in the special purpose vehicle (SPV) that owns 77 Robinson Road.

An outright purchase of the building would attract the usual buyer's stamp duty of up to 3 per cent - much higher than the stamp duty rate payable on share purchases, of 0.2 per cent of the net asset value or the market value of the company, whichever is higher. Hence a potential buyer looking at an asset purchase rather than a share purchase in an SPV would typically adjust its price downwards to factor in the higher stamp duty expense.

Moreover, CLSA Capital Partners' thorough knowledge of the asset, positions it well to conclude a swift deal, which is probably what the vendor is also eyeing, say market watchers. The earlier CLSA-linked fund that sold the building in April 2007 had acquired it 10 months earlier, in June 2006, for S$343.88 million or about S$1,165 psf, from Singapore Airlines.

77 Robinson Road's maximum development potential has been tapped. Under the Urban Redevelopment Authority's Master Plan 2014, the site is zoned for commercial use with an 11.2+ plot ratio (ratio of maximum potential gross floor area to site area).

Nevertheless, there may be scope to do some asset enhancement work on the property, presenting potential upside for a new owner, say observers. Among other things, some of the car parking space may be converted to commercial use: the building currently has 180 car parking lots. In addition, some of the air handling units could be decanted to free up spare GFA. There is also scope to spruce up and reconfigure the entrance lobby and upgrade common area.

One negative factor for 77 Robinson Road is that Dentsu, a major tenant, is expected to exit the building; its parent Dentsu Aegis Network is said to be finalising a lease for about 100,000 sq ft at the nearby Guoco Tower. The group will move out of several locations on the island, according to market talk.

Adapted from: The Business Times, 20 September 2016