Financial stress on one of Singapore’s best known retail groups has turned into a real estate investment opportunity as a consortium led by Lian Beng Group is picking up the headquarters of debt-laden bakery chain Breadtalk.
SGX-listed Lian Beng, which is purchasing the property together with partners from a local family office and real estate investment manager 32RE, announced on Friday that it is paying S$118 million ($88.7 million) for the industrial complex near the Paya Lebar area in central Singapore, with an agreement to lease the premises back to Breadtalk.
“This transaction is part of our capital re-allocation strategy towards a more asset-light model as we continue to focus on our core F&B business,” George Quek, chairman and group chief executive of BreadTalk Group said in a joint statement with Lian Beng.
The announcement is the second major disposal of a Singapore real estate asset by Breadtalk Group since its controlling shareholders began taking the food and beverage group private last year after posting a S$8 million after tax loss for the fourth quarter of 2019 and a full-year loss of S$5.2 million.
Lian Beng Buys into Paya Lebar
“The acquisition will extend our investment footprint in industrial real estate and help to diversify our property portfolio,” said Ong Pang Aik, chairman and managing director of Lian Beng. “BreadTalk Group’s lease commitment and the property’s strategic location should enable us to yield positive rental returns from this investment in addition to potential capital appreciation over the longer term.”
Lian Beng and its partners have a guarantee that Breadtalk will continue to lease the 10-storey building for at least a decade, although the food and beverage group has the option to buy back the property at a mutually agreed price before the end of the term. Breadtalk also has an option to extend its lease of the 248,902 square foot (23,124 square metre) building for an additional five years at market rates when the original rental term comes to an end.
At the agreed compensation, the buyers are paying the equivalent of S$474 per square foot for the property, which also includes retail shops on its lower levels. The completion of the acquisition, which is expected by 1 April, is conditional upon approval by Singapore’s JTC Corporation, which regulates use of industrial land in the city.
Bakery Slims Down
In addition to swinging to a loss in 2019, Breadtalk, which had borrowed heavily to expand in China and other international markets, announced in February last year that it was in technical breach of its financial covenants on $100 million in bonds due in 2023.
Shortly thereafter, a private firm controlled by Quek, his wife and his partners from Thailand’s Minor Group, arranged the buyout, with the firm officially delisting in June 2020.
In May of last year, Breadtalk was part of a consortium led by Singapore’s Perennial Real Estate which sold a 50 percent stake in the city’s AXA Tower to Alibaba at a S$1.68 billion valuation. The bakery chain retained a small stake in the new joint venture with Alibaba, while realising a S$27.5 million gain on the disposal.
Singapore Families Invest Together
Lian Beng is taking a 75 percent stake in a joint venture set up to purchase the Breadtalk property, which fronts the Kallang-Paya Lebar Expressway, with another 20 percent belonging to Apricot Capital, the family office of SuperGroup founder David Teo, who cashed out of a business making pre-mixed instant coffee, creamer and sugar three years ago for S$1.4 billion.
Apricot, which is managed by second-generation leader Darren Teo, has been active in real estate acquisitions around the region, including teaming up with Law Kar Po’s Park Hotel Group last month to purchase a newly built boutique hotel in Kyoto from Angelo Gordon and Mizuho Real Estate Management.
The final five percent of the joint venture belongs to 32RE, a real estate fund management firm set up in 2019 by former Surbana Jurong and BlackRock executive Jeremy Choy. SLB Development, a company controlled by Matthew Ong, a son of Lian Beng chairman Ong Pang Aik, is an investor in 32RE.