CapitaLand will gain full ownership of One George Street

CapitaLand will gain full ownership of One George Street if negotiations to buy German insurer Ergo’s 50 per cent stake in the 23-storey award-winning office building are successful.

BT understands that the Singapore-listed property company is in talks to buy Ergo’s half-stake for about $2,500 per square foot of net lettable area - or higher.

At $2,500 psf, the building would be priced at just over $1.1 billion and the half-share CapitaLand would buy from Ergo would be worth about $560 million.

CapitaLand and Ergo, a member of Munich Re Group, own roughly equal stakes in the property through their equally owned Eureka Office Fund.

One George Street, completed in late 2004, was a redevelopment of the former Pidemco Centre in South Bridge Road.

It was one of three assets that CapitaLand pumped into the $875 million Eureka Office Fund in 2001. The other two were stakes in The Adelphi and Temasek Tower.

Earlier this year, CapitaLand and Eureka sold their stakes in Temasek Tower to Macquarie Global Property Advisors Group for $1.04 billion or $1,550 psf.

Temasek Tower is on a site with about 74 years of the original 99-year lease remaining.

CapitaLand Group CEO Liew Mun Leong revealed later that the group’s listed CapitaCommercial Trust (CCT) made an offer for Temasek Tower but it was less than Macquarie’s.

As for CapitaLand’s decision to buy the rest of One George Street, a market watcher said: ‘Maybe they see greater upside there because it was developed on a fresh 99-year lease, boasts big floor plates of about 30,000 sq ft and is closer to the Raffles Place area.’

Analysts reckon CapitaLand may be seeking full ownership of One George Street with a view to injecting it into CCT when it generates sufficient yields as leases are renewed at higher rates.

Agreeing, another industry observer said One George Street recently received a tenancy offer for a 4,000 sq ft space at a whopping $16.50 psf a month, but this was rejected by the owners, who may be eyeing even more.

‘When the present leases at One George Street were signed, the office market was weak,’ an analyst said. But there is upside now as leases are renewed and new leases signed, given the surge in office rents over the past two years.

Major tenants at One George Street include the Royal Bank of Scotland, Legg Mason, hedge fund manager Tudor, Man Financial and Lloyds.

At CapitaLand’s recent Q2 results briefing, Mr Liew said ‘the Singapore office sector will remain a core holding’ for the group but that it will reconstitute its portfolio by selling some office assets and investing in new developments.

One George Street has almost 450,000 sq ft of net lettable area and has won awards for its architecture and landscaping.

It has four skyrise gardens, the biggest of which is on the fifth floor and accessible to the public.

As for The Adelphi in the City Hall area, the Eureka fund initially had full ownership of the 999-year leasehold property but later sold some units, leaving it with 62 per cent of share values, according to a report in February this year.

There are plans for a collective sale of The Adelphi, which will provide Eureka an exit. The fund is expected to be wound up once the last of its three assets has been divested.

Source : Business Times - 23 Aug 2007