Under the terms of the venture, Perennial is set to dispose its existing 31.2% stake in AXA Tower for net proceeds of $196 million, and will reinvest a 10% effective stake in the new JV for a price tag of $60 million.
This will see the group bag a divestment gain of $45 million.
See: Alibaba buys 50% stake in AXA Tower, assumes 50% of loan
The property price translates to $2,270 psf based on current net leasable area (NLA) of 740,000 sqft, with an implied yield of about 3%.
Analysts at DBS Group Research say the partnership marks a win not just for Perennial, but also Alibaba Singapore and the broader local office market.
For one, analyst Rachel Tan says that Perennial repeatedly demonstrated its ability to buy assets at good value, add value to them and realise their full value.
“With the assistance of its business partners, Perennial has time and again delivered on the development potential of investments secured,” says Tan.
With the property slated to be redeveloped either into a bigger office property or an integrated development, Tan says Perennial could benefit from cash proceeds of $138 million, as well as future recurring income from a bigger or more integrated commercial property.
“Taking this a step further, which we believe to be the likely scenario that AXA Tower will be developed into an integrated development comprising office, hotel and residential components,” says Tan.
“Alibaba Singapore has the potential to expand its presence in Singapore as an anchor tenant at AXA Tower,” she adds.
From a macro standpoint, Tan believes this transaction and potential redevelopment based on the CBD incentive scheme could lead to more redevelopment opportunities for the older office buildings in Singapore, which could bode well for office landlords.
“The decanting of CBD office space could further reduce the already tight upcoming supply in FY2020-FY2021 and cushion the impact of the expected huge supply in FY2022/FY2023,” says Tan.
“The reduction of office space may lead to a better demand-supply balance given potentially softer office demand given the weakened economic outlook caused by the Covid-19 pandemic,” she adds.
The brokerage is reiterating its “buy” call on Perennial with a target price of 83 cents, representing a 66% upside for the stock.
As at 3.21pm, shares in Perennial are trading 1.5 cents lower, or 3% down, at 48.5 cents. This translates to a price-to-earnings ratio of 79.4 times and a dividend yield of 0.4% for FY2020F according to DBS valuations.
