Singaporeans see Southgate's value climb
The massive Southgate complex in Melbourne, which Dexus sold last year for $578 million, has been given a 6 per cent uplift in its valuation by its new Singaporean owners.
The hefty revaluation underscores the investment rationale for the growing host of Asian institutional investors, which are now among the biggest buyers of landmark commercial property in the local market.
Facing the CBD across the Yarra River, the Southgate complex comprises 76,600 square metres of commercial space in total. That includes two A-grade office buildings, HWT Tower and IBM Centre, a three-level retail plaza and a basement carpark.
Its sale by Dexus last August on a 6.4 per cent cap rate was the largest commercial transaction in the Melbourne market last year.
Singapore-listed ARA Asset Management acquired Southgate through two funds it manages, the listed Suntec REIT and Peninsula Investment Partners, which holds Korean sovereign wealth capital.
The price at the time reflected a premium of $62 million, or 12 per cent, to Southgate’s book value for Dexus at June 30 last year.
The Group is an integrated property group operating across property funds management, development, property investment banking, property management and property investment.
ARA-managed Suntec has now estimated its worth even higher, putting its 25 per cent stake at $S160.4 million in its latest December 31 revaluation round. That represents an increase of above 6 per cent after factoring in currency rates.
The deal was months in the making, so the healthy revaluation also represents a degree of lag in values.
Rising prices
Nevertheless, it is in line with a run of rising revaluations from Australia’s major listed landlords ahead of their interim results.
Dexus itself recorded a 3.2 per cent portfolio lift in the half-year to December 2016 as cap rates tightened further.
Just before Christmas another major owner, Investa Office Fund, flagged a strong uplift in the valuation of its $3.6 billion portfolio of 8.0 per cent to 8.6 per cent.
Those valuations and the Southgate uplift may be a pointer to another year of prices rising in the commercial sector.
There are expectations that investment yields may fall below 5 per cent on prime CBD office towers as more international buyers, including Korean and Japanese institutions, crowd into the market.
Asian investors regularly bid for and buy trophy assets. One year ago, Singapore’s Ascendas made its maiden office purchase in Australia, paying in excess of $315 million for North Sydney landmark Innovation Place.
Chinese investors are moving into established real estate while the Asian-based arms of global investors are also big players.
In one such deal last year, JP Morgan Asset Management’s Asia Pacific property fund bought a $286 million office tower at Southbank in central Melbourne.
Last year as well Morgan Stanley seeded a new Asian fund with a stake in One Shelley Street in Sydney through a $525 million joint deal with Charter Hall.
