CapitaLand Commercial Trust (CCT) is acquiring Asia Square Tower 2 from a BlackRock-managed real estate fund for approximately S$2.1 billion ($1.5 billion), marking the largest office transaction in Asia Pacific this year and the second-largest globally.
The deal for the 46-storey tower in the heart of Singapore’s Marina Bay financial district includes grade A office space and a two-storey retail podium, valuing the property at S$2,689 ($1,987) per square foot. CapitaLand, the biggest developer in southeast Asia, was said to be in exclusive talks for the prime commercial tower with BlackRock this past March, after the New York-based asset manager began testing market interest in the property in 2016.
Through the sale, which is expected to be completed in November, BlackRock is disposing of the last asset in its $3.9 billion Asia Property Fund III, which is said to expire around mid-2018.
CapitaLand Boosts Value of Office Holdings to $10.1B
CCT, CapitaLand’s REIT affiliate, is both Singapore’s largest commercial trust and its biggest prime office landlord. The acquisition of Asia Square Tower 2 will increase the value of the trust’s grade A office portfolio from S$4.9 billion to S$7.0 billion, boosting the value of its set of office properties from S$8.0 billion to S$10.1 billion.
“The addition of Asia Square Tower 2 is a strategic move that is in line with our portfolio reconstitution strategy to rejuvenate CCT’s portfolio with the addition of newer and higher yielding Grade A assets,” commented Soo Kok Leng, chairman of CapitaLand Commercial Trust Management Limited in a statement.
Completed in 2013, the property features 753,445 square feet (69,997 square metres) of grade A office space and a 25,274 square foot (2,348 square metre) retail podium. The tower’s 1.2 million square feet (113,580 square metres) of gross floor area also includes the Westin Singapore, a five-star luxury hotel which the BlackRock fund sold to Japan’s Daisho Group at the end of 2013.
Buying Up a Prime Asset Below Market Value
The tower has a committed occupancy rate of 88.7 percent as of the end of June, according to CCT, with a roster of office tenants that includes Mizuho Bank, Mitsui Group and Allianz. The trust manager expects the deal will bring a net property income yield of 3.6 percent per annum.
“We seized the opportunity to acquire a premium Grade A property at an attractive price and entry yield,” commented Lynette Leong, CEO of CapitaLand Commercial Trust Management Limited. “Market statistics have shown that Singapore’s office market rents have reached a trough; hence, the acquisition will position CCT to benefit from the expected market uptick in Grade A office rents.”
In a presentation deck, the trust manager noted that the tower’s agreed property value of S$2,689 per square foot was below that of a basket of comparable grade A office assets, which average S$2,917 per square foot. However, that price is roughly the same as the S$2,636 per square foot that the neighbouring Asia Square Tower 1 sold for last year.
BlackRock Exits Asia Square Complex
The transaction completes BlackRock’s disposal of the entire Asia Square complex, including the two towers and the hotel, for a combined price of S$5.8 billion ($4.3 billion). BlackRock acquired the complex in 2013 when it purchased MGPA, a Singapore-based firm that closed the region’s largest private equity real estate vehicle, Asia Fund III, at $3.9 billion in 2008. The fund had acquired the leaseholds for the Tower 1 and 2 sites in September and December 2007, respectively.
International property consultancies JLL and CBRE advised on the latest sale. The bidding process, which took place in February and March of this year, generated strong interest from local REITs, asset managers and Asian sovereign funds, according to Stuart Crow, Head of Asia Pacific Capital Markets at JLL.
“People are bidding on assets, transaction volumes are going up,” said Crow in a conversation with Mingtiandi. “That is really a reflection of people’s positive view on where we’re eventually going to go.”
The Asia Square transaction comes as a surge of new grade A buildings have begun entering the market, but the veteran broker believes the impact of the recent burst of supply may be largely over. “A lot of the preleasing in some of the newer stock has been completed, and in fact there’s not a lot of supply forecast between now and 2021,” Crow noted. “Investors expect rents to go up, and it’s a good entry point in the cycle.”
BlackRock was first said to be testing marking interest in Asia Square Tower 2 last November, following its sale of Asia Square Tower 1 to the Qatar Investment Authority for a record-setting price of $2.45 billion in June. As part of that acquisition, which was from a separate BlackRock fund, QIA was also given the right of first refusal to acquire the Tower 2 when it was put on sale, but the Qatari sovereign wealth fund declined to exercise that right.
In March of this year, PERE reported that CapitaLand was in exclusive talks with BlackRock to acquire Tower 2 for a price in excess of $1,922 per square foot. CapitaLand had also been among the suitors for Tower 1 in 2015 but ultimately pulled out of the bid in November of that year, according to the report.
Singapore Office Investment is Booming
The landmark sale marks the latest in a flurry of deals in Singapore’s downtown office market. In July, CapitaLand teamed up with Mitsubishi Estate and CCT to begin developing a new S$1.82 billion ($1.32 billion) mixed-use skyscraper at Raffles Place.
Earlier that month, CCT sold the mixed-use development Wilkie Edge to a homegrown construction group for S$280 million ($202.7 million), and in May the trust offloaded its stake in a 23-storey office building at Raffles Place for S$591.6 million ($424 million), to a unit of Richard Li’s FWD Group.
Among other major deals in Singapore, Hongkong Land announced in June that it was linking up with a leading Malaysian developer to build and manage a pair of office towers in the Marina Bay Financial District, paying S$940 million ($682 million) for its stake in the project.