Analysts at DBS Group Research believe that the buyer will emerge as the “bigger beneficiary” in the $1.025 billion sale of Chevron House, reported The Business Times.

The prime office building in Raffles Place was sold by Oxley to Golden Compass, which is fully owned by US-based real estate fund AEW, just 16 months after the former acquired the 32-storey office tower in December 2017 for $660 million.

“Based on the available information and our ballpark estimates, we believe the buyer is the bigger beneficiary of this transaction by acquiring the office component of Chevron House at below four percent cap rates, with reversionary potential close to five percent cap rates,” said DBS analysts Rachel Tan and Derek Tan in a research note.

“This has yet to factor in any potential plot ratio upside from the government schemes to incentivise the redevelopment of the central business district.”

The cap rate refers to an investment property’s return rate based on the income it is expected to generate.

Oxley and other industry sources, however, disagree with the DBS analysts’ view.

An Oxley external spokesman noted that it would be unfair to compare this transaction to a sale of a completed building, considering that Chevron House is still undergoing alterations, enhancement works and additions.

“Also, the building was sold with no tenancy agreements, so it will be up to the buyer to source for tenants. Many developers in the market are saying that Oxley got a great deal by selling a building just based on drawings,” he said.

Meanwhile, an industry source who refused to be identified said the sale could “potentially go down as the deal of the year”.

“Oxley managed to sell the building for a handsome profit of more than S$200 million to shareholders in such a short time, despite the incomplete construction and zero tenancy agreement.”

Under the sale-and-purchase agreement, after Oxley receives the initial payment of $210 million, it would have to finish the works and divest the banking and retail units before the buyer would pay the balance and discharge the bank loans.

The DBS analysts said the $210 million initial cash proceeds will facilitate the repayment of Oxley’s first tranche of $300 million retail bonds expiring on 5 November, although some of the deal’s terms have not been disclosed.

“The devil is in the details, but the terms attached between Oxley and the buyer with regard to the divestment of the retail and banking units, and any other terms and conditions are not made known. If we assume that the first tranche of payment is potentially the maximum gain or cash proceeds to be received by Oxley for the sale, we believe the cash received will alleviate some of Oxley’s urgent cash requirements, though not completely,” they said.

Source: 3 May 2019, CommercialGuru