6 floors of Prudential Tower being sold

K-Reit said to be buying space at about $1,550 psf of net lettable area

IN a deal that could help benchmark office values in the Raffles Place area and smooth the way for more office investment transactions, a property fund is said to be selling six floors at Prudential Tower for about $1,550 per square foot or about slightly over $100 million.

The buyer in the deal being stitched together is believed to be listed K-Reit Asia, which already owns 44.4 per cent of the strata area in the 30-storey building at the corner of Church and Cecil streets.

Prudential Tower is on a site with a remaining lease of about 85 years. Jones Lang LaSalle is said to be brokering the latest sale involving net lettable area (NLA) of about 67,000 sq ft.

As at the end of last year, K-Reit's existing space at Prudential Tower was valued at $224 million, or $2,066 psf based on 108,436 sq ft NLA.

So the price of $1,550 psf that K-Reit is expected to pay for its latest acquisition of six floors is about 25 per cent lower than the end-2008 valuation on its existing space.

Some market watchers described the latest pricing as 'not unreasonable'.

'They seem to be slapping themselves by buying additional floors in Prudential Tower that could affect the valuation of their existing space in the building. But one could argue that the end-2008 valuation was too high in the first place,' one property consultant said.

In any case, an industry observer points out that K-Reit could still use a higher valuation than $1,550 psf for Prudential Tower when it revalues its assets at end-2009.

It also made sense for K-Reit to raise its stake in Prudential Tower and gain control of the building as that could create other strategic options for the Reit.

The latest deal involves the 20th to 25th levels. The seller is Asia Property Fund, sponsored by LaSalle Investment Management and PruPIM. The fund bought the six floors in 2007 for $141 million or just under $2,100 psf from Prudential Assurance Company Singapore. The latter received units in the fund in exchange for selling the floors. Prudential Assurance Co Singapore and PruPIM are part of the Prudential UK Group.

Prudential Assurance Co Singapore still owns the 30th floor of the building, sources say. It had purchased the seven floors in the development in early 1996 for $183 million from Straits Steamship Land, now known as Keppel Land.

That transaction worked out to $2,200 psf. Although this figure was based on floor space and not NLA, property consultants say the dollar psf price on NLA at which KepLand sold the space in 1996 would be higher than what K-Reit (a KepLand unit) is paying in the latest deal.

In short, KepLand group is buying back the space at a lower price than what it sold it for 13 years ago.

Following its sale of the seven floors to Prudential Assurance, KepLand also sold further space in the building to other parties before divesting its remaining 44.4 per cent stake in Prudential Tower to K-Reit, which was created from a de-merger from KepLand and listed in 2006.

Source: Business Times, 1 Sep 2009