Duo offices, hotel, retail space said to be going on the market

M+S Pte Ltd, the joint-venture between Malaysia’s Khazanah Nasional and Singapore’s Temasek Holdlings, has appointed JLL to advise it on the sale of the office, hotel and retail components of the Duo project along Beach Road, said sources.

They told The Business Times that the combined asking price for the above components is about S$2 billion.

The joint-venture company has sold almost all the 660 apartments in the mixed-development project.

M+S Pte Ltd, the joint-venture between Malaysia’s Khazanah Nasional and Singapore’s Temasek Holdlings, has appointed JLL to advise it on the sale of the office, hotel and retail components of the Duo project along Beach Road, said sources.

They told The Business Times that the combined asking price for the above components is about S$2 billion.

The joint-venture company has sold almost all the 660 apartments in the mixed-development project.

The 56,000 sq ft retail component, Duo Galleria, is on Level 1 and Basement 3.

The asking price for the 342-room Andaz hotel is S$500 million, or S$1.46 million per key.

When contacted, an M+S spokesman said: “Duo is a successful development which has completed more than a full year of operations since receiving its first TOP (Temporary Occupation Permit) in December 2016. Its operations are stable, with a vibrant community of home owners, tenants, retailers, shoppers and hotel guests. As the development is performing well, we’ve engaged JLL to advise us.

“There is no basis for speculation on pricing.”

She added that there are no plans for Marina One, M+S’ other project, which has two office towers adding up to nearly 1.88 million sq ft of prime Grade A office space. It also has 140,000 sq ft of retail space. The project’s 1,042-unit residential component is more than half sold.

At Duo, the office component known as Duo Tower occupies levels 4 to 23 of the 39-storey tower in the mixed development.

Andaz hotel takes up the upper levels of the tower.

Word on the street is that the office space occupancy rate is about 85 per cent. Major tenants include Abott Laboratories, Mastercard, Chevron and Estee Lauder.

A seasoned property consultant said that, assuming an average monthly rental in the high-S$8 psf range, a buyer who requires a 3.5 per cent net property yield would be prepared to pay around S$2,400 psf. This would put the total price of the office space at nearly S$1.4 billion.

The Duo is on a site with 99-year leasehold tenure. The clock started ticking down on July 1, 2011, leaving about 92 years on the lease.

Market watchers noted the factors counting against Duo Tower offices: One is that it is outside the financial district.

Another is its large deal-size, which would limit the pool of potential buyers.

“Moreover it is a strata-titled property, so if you are a long-term investor and want to redevelop the asset in future, you’d need the consent of all the other strata owners in the project,” said a property consultant.

He added: “For this scale of absolute price, an investor could buy an entire office tower in Sydney, London or New York. so Duo Towers may not be everybody’s cup of tea.”

On the other hand, other observers say that, given the blue-chip profile of the office tenants, the asset would be attractive to some investors.

A property investor told BT that the asking price of S$2,300 psf for a completed office product in the Beach Road area would be below replacement cost, based on current land values.

Likewise he found the S$1.46 million-per-key asking price for the Andaz, a five-star hotel, to be below his estimate of a S$1.75 million-per-key replacement cost based on current land values.

“I think the Duo offerings will be hotly contested, as they are going at below today’s replacement costs. Land prices have appreciated to a level where it is making them look reasonably priced from a replacement-cost point of view – ignoring cash flows and yield. These are relatively new assets and need more time to stabilise.

Duo, designed by renowned architect Ole Scheeren, received its Temporary Occupation Permit in stages between end-2016 and end-2017.

M+S, a 60:40 tie-up between Khazanah and Temasek, was the result of a historic land-swap deal between Singapore and Malaysia in 2010. Three plots of former Malayan Railway land and three additional plots in Bukit Timah were exchanged for four land parcels in Marina South and two parcels in Ophir-Rochor, giving rise to the two developments.

A market observer said: “If M+S fetches a high price for Duo Tower offices, that could then become a benchmark which it could use to get an even higher price for the two office towers in Marina One, given its superior location,” said an observer.

Previously, there was talk of Khazanah selling its stake in M+S Pte Ltd as part of the Malaysian government’s efforts to tackle the huge public debt and restructure its state-linked funds.

It is generally perceived that Khazanah would consider exiting the Singapore projects at some point, depending on how soon their income streams stabilise.

Some industry watchers suggest that the average psf monthly rental based on all the office leases signed so far in Duo is higher than that for Marina One.

A source told BT this week: “(They) have started a process for sale of Duo as it has fully matured with good tenancies. Not Marina One, as that has a ways to go on tenancy maturity.”

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