Another 74.5 years are left on the lease with the building 91% occupied.
The former building of Singapore Airlines (SIA), Robinson 77, has been put up for sale by CLSA Real Estate for $725m, up from the $530.8m purchase price in 2016 and following a major revamp of the 35-storey office building, DBS Equity Research said, citing media reports.
The building’s net leasable area (NLA) stands at 307,585 sqft, which is an increase from 293,269 sqft when CLSA first acquired the building. The second-storey carpark was converted into 15,000 sqft of NLA.
Another 74.5 years are left on the land lease with the building 91% occupied. Major tenants include Adidas, NTUC Link, Sony Pictures, Coach, DVB Bank, and Ernst & Young.
Based on the $725m price, this would translate to a net yield of 3-3.5% in the first year after the acquisition, noted DBS Equity Research analyst Mervin Song. “The potential sale of Robinson 77 on a forward yield of 3-3.5% and exit yield of sub-3% once again highlights the resiliency and strength of capital values of Singapore office buildings,” he said.
If Robinson 77 is sold at the asking price, it would follow the tight yields for office buildings over the last 12-18 months such as 55 Market Street (sold) with a 1.7% exit yield and Twenty Anson (sold) with a 2.7% exit yield.
“These transactions/potential transactions also indicate that office REITs remain undervalued, trading at close to or below book values that are ‘conservative,’” Song added. The office buildings owned by office REITs are generally in more prime locations and are valued using cap rates of between 3.5-4%.
“Thus, we retain our overweight stance on Office REITs not only for the discount to book values but also the leverage to an expected multi-year upturn in office rents given modest new supply over the next three to four years,” he added.
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