Philips has agreed to sell its Asia Pacific headquarters in Singapore’s Toa Payoh area to Ascendas REIT for S$104.8 million ($76.2 million), as the Amsterdam-based conglomerate continues to restructure its global operations.
After selling off its domestic appliance and lighting divisions in recent years to focus on healthcare technology, the Amsterdam-based firm no longer occupies the entire 408,760 square foot (37,975 square metre) building, and will lease back approximately two-thirds of the structure from the CapitaLand-managed REIT following completion of the transaction.
“This does not change our business operations in any way and Singapore will remain an important market for Philips and a thriving regional hub for our business, innovation and stakeholder collaboration,” Caroline Clarke, chief executive and executive vice president of Philips ASEAN Pacific, said commenting on the sale, which has been reported to be in the works since last December.
The sale which was announced in an SGX filing last week makes Philips the latest multinational to raise capital for its core operations through a sale and lease-back deal involving Singapore facilities, following Japanese firm Pokka Sapporo Food & Beverage’s agreement in April with logistics specialist ESR and US fund manager PGIM Real Estate for a logistics project on Benoi Crescent.
For SGX-listed Ascendas REIT, Philips’ unneeded space represents an opportunity to expand its portfolio in the trust’s home city.
“Singapore remains a key market for Ascendas REIT, making up approximately 60 percent of total assets under management,” said William Tay, executive director and chief executive of the trust’s manager. “The acquisition of APAC Center is a natural addition to the portfolio, strengthening our technology and biomedical customer base and improving the overall resilience of the portfolio.”
The purchase price, which is equivalent to S$256.39 per square foot of the existing floor area based on independent calculations, translates to a 6 percent discount to the property’s independent market value of S$111.5 million. If the S$1.05 million acquisition fee for the trust manager and other transaction costs are taken into account, the sale’s total cost rises to S$110.4 million.
Philips APAC Center has six levels comprising laboratory, research, warehousing and ancillary office space, and is currently 95.7 percent occupied by four companies with Philips as the anchor tenant. Together the tenants have a weighted average term to lease expiry of 4.5 years.
The trust sponsored by CapitaLand Investment estimates that in the first year post-transaction, the asset will generate a yield of 6.8 percent on a net property income basis and boost distributions per unit by S$0.045.
A-REIT’s manager said it also plans to attain a certification of BCA Green Mark Gold Plus for the asset under Singapore’s system for sustainable buildings. The deal, which was brokered by CBRE, is expected to be completed by the second half of the year and will be funded by a mix of internal resources and debt. It will boost the REIT’s portfolio to 229 properties, comprising 96 assets in Singapore and 36 Australian properties, as well as 97 assets across the US and the UK.
CBRE declined to comment on the transaction.
Exiting Consumer Electronics
Located at 622 Lorong 1 Toa Payoh in the northern portion of central Singapore, the facility near Caldecott MRT was redeveloped in 2016 for use as a high-tech HQ and innovation centre. Located within a 15-minute drive of Singapore’s central business district, the project site has about 20 years left on its 99-year leasehold.
Philip’s Clarke described the Toa Payoh sale as a logical move considering that the asset is already occupied by multiple tenants after Philips divested its Signify lighting division in a deal which closed in 2020 and sold its domestic appliances unit last year. Hillhouse Capital acquired the appliance business for €3.7 billion (now $3.78 billion).
Philips first set up its Singapore operations in 1951 as some of the company’s biggest manufacturing facilities in the world, before transforming them into research and development hubs as it shifted to the health technology sector.
Rising Rents Support Industrial Deals
The transaction comes as Singapore’s industrial sector continues to attract robust demand from both occupiers and investors, thanks to a “buoyant manufacturing sector” and strong economic fundamentals, said Rimon Ambarchi, CBRE’s head of industrial and logistics services for Singapore and Southeast Asia.
“In particular, we are seeing strong activity from the electronics/semiconductor, biomedical and precision engineering clusters,” Ambarchi said in response to Mingtiandi’s queries on Friday. “From an investment perspective, there continues to be incredible interest in the Singapore industrial market driven by strong fundamentals in the manufacturing and logistics sectors which are creating strong rental growth.”
Singapore industrial rents rose by 1.5 percent in the second quarter from the previous three months, according to JTC data.
The latest figure represents the seventh consecutive quarter of growth for the sector, supported by a vacancy rate which fell to 9.1 percent last quarter.
Rising rents and falling vacancy have boosted sales of industrial assets in the city, including ESR-Logos REIT cashing out from its five-storey Pandan Logistics Hub in Jurong East last month via a S$43.5 million sale to local firm ST Logistics.
The SGX-listed trust is exiting what it refers to as a non-core asset at a 15 percent premium to its valuation.