European insurer Allianz on Friday announced that it has agreed to buy a 20 percent stake in the Ocean Financial Centre office tower in Singapore from Keppel REIT for S$537.3 million ($392.1 million).
Allianz’ investment in the grade A office tower in the city’s Raffles Place financial district marks the Munich-based company’s first office investment in the Southeast Asian financial hub. Keppel REIT, which owns 99.9 percent of the office tower, has reached an agreement with Allianz to close the transaction within this month.
The Singapore commitment marks the third major investment to be announced by Allianz in a ten day period in late November, after the insurer had earlier announced a goal of allocating up to ten percent of its total real estate investments globally to the Asia Pacific region.
Allianz Pursues the SG Office Market
“The Singapore office market is experiencing strong rental growth,” Rushabh Desai, Asia Pacific CEO for Allianz Real Estate said in a statement. “From an occupational cost and efficiency perspective it continues to be favorable vis-a-vis other comparable markets like Hong Kong.” Desai added that the “prime location, superior quality and best-in-class asset management” of the Ocean Financial Centre were factors in his team’s investment decision.
According to information from real estate consultancy JLL, which is understood to have advised Keppel REIT on the transaction, the 43-storey Ocean Financial Centre, which is also known as 10 Collyer Quay, offers a total of 877,635 square feet (81,534 square metres) of office space, with floor plates in the Pelli Clarke Pelli-designed tower ranging from 20,000 to 23,000 square feet.
Completed in 2011, and with 92 years left on its 99-year leasehold, the project earned the US Green Building Council’s LEED Platinum rating as well as being awarded Singapore’s own Platinum Green Mark certification and primarily serves multinational finance tenants including Australia’s ANZ Bank and BNP Paribas as well as local Singaporean law firm Drew & Napier.
The tower also includes retail space on its ground and basement levels, and occupies a site which was formerly home to Keppel Land’s Ocean Building.
Keppel Takes Cash Out of Prime Asset
“The partial divestment of Ocean Financial Centre is a unique opportunity for Unitholders to realise part of the capital gains from this premium Grade A office building, while maintaining exposure to the strengthening Singapore office market,” Tan Swee Yiow, CEO of Keppel REIT Management Limited, which manages the listed trust said in a statement. “Despite this being a divestment of a non-controlling stake, the agreed property value reflects the asset’s quality and underlying value.”
Keppel REIT acquired the tower from Keppel Land in 2011, just one year after the project topped out, for just over S$2 billion.
By selling 20 percent of the tower’s equity for S$537.3 million, Keppel REIT is realising a 34 percent increase in the value of the commercial building in seven year’s time and in the statement, the REIT’s manager said it expects to book a net gain on the transaction of S$6.9 million after deducting transaction costs.
Following the divestment, Keppel REIT will continue to hold a 79.9 percent interest in the project, and Keppel REIT Management Limited will also continue to be the asset manager for Ocean Financial Centre.
Singapore as a Prime Office Location
“This transaction is indicative of global investors’ confidence in Singapore thanks to its ongoing political stability, robust infrastructure and strong market fundamentals,” said Stuart Crow, Asia Pacific head of Capital Markets for JLL. He added that, “People see the market as being on positive uptrend and assets are still trading at a big discount compared to Hong Kong, Shanghai and Tokyo, so there are some opportunities.”
JLL’s October report on the city’s property market report shows that Singapore’s prime office rents have climbed a total of 18 percent over six consecutive quarters since 2017, and in the Emerging Trends in Real Estate Asia Pacific report, jointly published by the Urban Land Institute (ULI) and PwC last month, property industry professionals surveyed ranked Singapore second only to Melbourne as the most appealing location for property investment in 2019.
Allianz’s Shopping Spree
For Allianz, which currently manages $67.5 billion in property assets globally, the Ocean Financial Centre deal represented an opportunity to add a stake in the type of core office asset that rarely becomes available in a regional gateway city in the current market. That opening fits in handily for a institution that has set a target of having Asian investments account for 10 percent of its real estate investment allocation worldwide.
The company appears to be making rapid progress toward that goal as the Singapore announcement came within ten days of Allianz unveiling major investments in mainland China and India.
Late last month, Allianz revealed that it had acquired a 50 percent stake in a portfolio of mainland China logistics assets from a joint venture between Vailog China, the local division of an Italian industrial property specialist, and a fund managed by Hong Kong’s Gaw Capital Partners.
Later in the same week, the Munich-based company announced that it was investing $225 million into a Indian warehouse venture with logistics developer ESR. Allianz and ESR expect that joint venture to grow into a $1 billion platform managing warehouse assets across the south Asian nation.