ERA Daily Research - 4 May

Ageing buildings take another crack at going en bloc

Business Times, 4 May 2021, Tue 5:50am

By Nisha Ramchandani

SOME ageing buildings in the Orchard vicinity are hopping on the collective sale bandwagon, with Tanglin Shopping Centre (TSC) and Orchard Towers among those eyeing a collective sale, The Business Times understands.

TSC, which is mounting its fourth attempt, is gunning for a reserve price of S$785 million. This works out to a little over S$2,500 per square foot per plot ratio (psf ppr) based on the gross floor area of approximately 313,000 square feet (sq ft).

BT understands that close to 60 per cent of owners (in terms of both share value and strata area) have signed the collective sale agreement thus far. City Developments' (CDL) hotel arm, Millenium & Copthorne Hotels, which owns over 34 per cent of TSC - or 85 strata-titled lots - is said to be among the consenting owners. When contacted by BT, a CDL spokesperson declined to comment.

A minimum 80 per cent of owners will have to consent before the building can proceed to be launched for collective sale via tender. Savills has been appointed the marketing agent for TSC.

Touching on TSC's redevelopment potential, Savills' deputy managing director (investment sales & capital markets), Galven Tan pointed out that TSC is zoned commercial under the Urban Redevelopment Authority's (URA) guidelines, with no less than 60 per cent to be used for commercial use, while 40 per cent could be for other uses such as luxury residential or a six-star hotel. He added: "As it is zoned commercial, no additional buyer's stamp duty (ABSD) will be payable."

Assuming a developer explores an alternate use for the 40 per cent, the reserve price would translate to an estimated S$2,700 psf ppr (including the development charge), market watchers said.

Highlighting the attributes of the 68,512 square foot (sq ft) freehold site offering unobstructed views towards The Botanic Gardens, Mr Tan added: "Some Hong-Kong based developers are already eyeing the site and talking to their architects."

With over 360 strata retail and office units, TSC - which is over 50 years old - comprises one 12-storey office block as well as a six-storey retail podium, with a basement car park and a multi-storey car park. The strata area is around 230,000 sq ft.

It has a plot ratio of 4.2, with a 20-storey maximum height under the Master Plan.

This is the fourth time TSC is looking at a collective sale, having made earlier attempts in 2011, 2014 and more recently in 2017. The previous attempt in 2011 reportedly had a higher reserve price of S$1.25 billion, which was not met. The second and third attempts did not reach the public tender stage.

TSC's chairman of the collective sale committee (CSC), Hoo Len Yuh, told BT the apportionment method this time around is fair, which could help garner more support. "It makes a lot of difference when the apportionment method is well received," he said.

Not far from TSC, freehold strata-titled Ming Arcade is also said to be looking at a collective sale. Completed in the 1980s, the seven-storey building with three basement storeys is situated near the junction of Orchard Road and Cuscaden Road.

For Orchard Towers, the process is understood to be in the early stages, with an extraordinary general meeting convened recently to form the CSC, sources said.

When contacted by BT, the management office for Orchard Towers declined to comment.

Typically, the next step would be to appoint a marketing consultant and lawyers to determine a reserve price and the method of apportionment.

Chief executive officer of Showsuite Consultancy, Karamjit Singh, reckoned that both TSC and Orchard Towers are "ripe for redevelopment", citing their age as well as the dynamic retail and hospitality scene. Mr Singh added: "They enjoy freehold tenures and great spots on the iconic Orchard shopping belt, which make them highly coveted especially to foreigners."

Orchard Towers, with a plot ratio of 4.9, sits on a site of some 6,130 square metres (sq m) in area.

It spans two buildings, with retail and office space in the front tower along Orchard Road, as well as some commercial units and 58 private residential units in the rear 25-storey tower along Claymore Road. In addition, it has 361 car park lots.

Completed in the early 1970s, it is next to Palais Renaissance mall and opposite Forum The Shopping Mall, and is a short walk from Orchard MRT station.

However, the development is perhaps better known for its seedy reputation, while also having made the headlines in 2019 after a pub brawl led to a man's death.

Still, consultants whom BT spoke to said that Orchard Towers offers attributes that could prove attractive to developers.They declined to comment on a likely reserve price at this stage.

According to a media report from 2007, Orchard Towers has considered a collective sale in the past.

Steven Tan, senior director (investment services) at Colliers, expects that Orchard Towers - flanked by high-end and prestigious developments - would pique the interest of prospective buyers because of its location in the Orchard/Claymore area as well as its freehold tenure.

Mr Tan also noted that there is limited supply in the vicinity, adding: "Such opportunities (are) seldom available in the market."

ERA's head of research and consultancy, Nicholas Mak, pointed to Orchard Towers' redevelopment potential, especially given its location, "surrounded by prime real estate within a stone's throw".

Mr Mak went on to add: "But the price will have to be right in order for developers to bite. Given the ongoing headwinds in the retail and commercial sectors, the value of commercial space after the property is completed in a few years' time is still very uncertain."

It can sometimes be challenging for a mixed-use development - in this case, with retail, office and residential units - to meet the minimum 80 per cent threshold for consent in order to be launched for sale by tender.

"There's a higher probability that owners of different types of space may disagree on the apportionment method because each have a higher estimated value of their own property," said Mr Mak.

Source: https://www.businesstimes.com.sg/real-estate/ageing-buildings-take-another-crack-at-going-en-bloc  

Listed developers are not going extinct

Business Times, 4 May 2021, Tue 5:50am

By Leslie Yee

LISTED property developer groups here are undervalued, going by the large discounts to net asset value (NAV) at which they trade.

This phenomenon is not unique to Singapore. In property-crazy Hong Kong, behemoths such as Sun Hung Kai Properties and CK Asset Holdings also trade at significant discounts to NAV.

In deriving the NAV, investment properties are typically carried at mark to market valuations done by independent valuers. As for hotel assets, these are usually carried at historical cost less depreciation. Properties under development meanwhile are carried at cost.

So unless physical asset prices are falling rapidly or development projects are loss-making, the NAV of a property group is probably a conservative figure.

A popular solution to this problem of undervaluation has been for major shareholders to privatise listed property groups. Examples from the past include Allgreen Properties, United Engineers, Sim Lian Group, and SC Global.

On Friday, Top Global's major shareholder launched an offer to privatise the group.

A different solution is being offered by Singapore's largest listed property group, CapitaLand.

CapitaLand's property development business will be taken private by its controlling shareholder while its real estate investment management activities and lodging business will remain in the public market under an entity called CapitaLand Investment Management (CLIM).

CLIM will be a real estate investment manager (REIM) that hopes to trade well relative to NAV. In its presentation on the proposed restructuring, CapitaLand highlighted that a basket of REIMs comprising Charter Hall Group, Goodman Group, Lendlease Group and ESR Cayman trade at a premium to NAV.

Investors going after yield from real estate investment trusts (Reits) have propelled the growth of this asset class. Today, Reits outnumber property developers in the 30-strong Straits Times Index.

Could the listed property developer become extinct?

Possibly not. Take Ho Bee Land, one of the larger family owned and managed developers. Listed in 1999, a year ahead of when CapitaLand made its debut on the local bourse, Ho Bee has been quiet on the corporate action front all these years.

In contrast, CapitaLand has been buzzing in corporate action be it the current restructuring, listing then privatising CapitaMalls Asia, acquiring Ascendas-Singbridge, privatising The Ascott Group.

Ho Bee continues to be led by its founder Chua Thian Poh, who has been chairman and chief executive officer (CEO) since 1999.

Operationally and strategically though, Ho Bee has transformed over the past two decades.

In Singapore, the group made its mark starting in the early 2000s as the pioneer developer in Sentosa Cove, eventually becoming the biggest developer building a total of eight high-end condominiums, terrace houses and villas.

Post the global financial crisis of mid 2007 to early 2009, Ho Bee made a concerted effort to grow its investment property portfolio.

Notably the group embarked on developing The Metropolis at One-North. Today, it continues to own 100 per cent of The Metropolis with a gross floor area of around 1.2 million square feet.

The group has also been aggressively growing its investment property portfolio in London, where it owns seven prime office buildings, mainly freehold in tenure, with a total net lettable area of around 1.6 million sq ft.

From owning S$330 million of investment property in 2008, the group's holding of investment property has grown fourteen times to S$4.6 billion in 2020. By operating segment, revenue from property investment jumped from S$17 million in 2008 to S$215 million in 2020.

As Mr Chua put it in the latest annual report: "Our group's resilient income base from our investment portfolio built up since the last global financial crisis has helped us navigate through the challenges."

For 2020, dividend per share is 10 Singapore cents, consistent with that of the previous three years, and up from two cents per share in 2008.

The lesson here is that the push to building recurrent income has been successfully executed and shareholders have received tangible benefits.

Ho Bee is not standing still operationally. Last year, it was awarded the concept and price tender to build, own and operate Biopolis Phase 6 at one-north, with its bid of S$223.6 million. This project will offer 35,000 square metres of business park space for biomedical sciences research and supporting activities, and 6,000 sq metres for office and retail use.

Last year, the group also acquired five sites in Australia to develop master-planned residential communities in Queensland and Victoria that will generate 2,000 lots for sale over the next few years.

Ho Bee's shares trade at about half of NAV of S$5.46 per share. Perhaps rectifying this valuation disconnect is not that high a priority for the group so long as it continues to execute well on its projects and business strategy.

Mr Chua who has a deemed interest of over 75 per cent in Ho Bee may be happy as long as operations move along, dividend can hold steady or improve gradually and succession to his son, deputy CEO Nicholas Chua, can happen smoothly in due time.

Meanwhile Mr Chua is well remunerated, drawing total remuneration in the band of S$8.25 to S$8.5 million in 2020.

Fellow property group Hong Fok Corporation paid executive director and joint CEO Cheong Pin Chuan and three of his siblings in excess of S$12.5 million in 2020. Pin Chuan also has two sons who are among the group's senior management. The Cheong family are substantial shareholders of Hong Fok, which has a market capitalisation less than half that of Ho Bee.

Family owned and run property groups are not uncommon in the listed space in Singapore. They are a diminishing breed on the Singapore Exchange but they are not going extinct any time soon.

Complying with listing rules may be a hassle. However, by being listed, family led groups can tap on the counsel of independent directors and strengthen their corporate governance.

Given the huge challenges confronting real estate in a post-pandemic world, it is likely a case of all hands on deck to get the strategy and operations right so business value can be sustained through generations.

Using a long lens, privatisation and corporate restructuring exercises can be put on the back burner as these are time consuming and fraught with uncertainty.

Source: https://www.businesstimes.com.sg/real-estate/listed-developers-are-not-going-extinct  

ERA starts S$10m kitty for agents' professional development

Business Times, 4 May 2021, Tue 5:50am

By Vivienne Tay

ERA Network Realty is contributing over S$10 million into a 2021 Covid-19 business-support plan to help more than 8,000 agents with their professional development.

The plan comprises three grants - digital, training and career, which respectively cover digital adoption, skills upgrading and career progression.

Under the plan, all ERA Singapore agents will receive about S$1,340 each. This comprises a digital grant of S$700, a training grant of S$356 and a career grant of S$283.50.

The digital grant encourages agents to harness new technologies, S$500 of which can be used to set up, for example, a custom domain and hosting, or to develop a personal website.

Another S$100 can be used for ERA tech tools such as RealtyWatch by ERA, robo advisers, robo chatbots, eSignature, analytics and e-books.

Agents may also use S$100 of the digital grant to offset costs that come from subscriptions to digital services such as assessing condo floor plans, HomeBiz and HomeLoan, among other things.

Out of the S$356 training grant, ERA agents can claim up to S$76 when they attend continuing professional-development courses conducted by the RIA School of Real Estate, or to redeem S$100 in ultimate agent training electronic vouchers on myERA. The remaining S$180 can be used to cover expenses incurred when attending specific conferences.

The career grant of S$283.50 can be used to fully offset the renewal of an agent's real-estate salesperson licence if this is paid within the Oct 1 to 31, 2020 cycle. The grant can also be used for other business outflows such as prospecting or recruitment matters.

Source: https://www.businesstimes.com.sg/real-estate/era-starts-s10m-kitty-for-agents-professional-development   

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