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Hiap Hoe: Orchard Towers Valuation Report

This afternoon, I made a trip down to Hiap Hoe’s registered office to inspect the Sales and Purchase Agreement (SPA) and Valuation Report pertaining to the purchase of Golden Bay Realty. Here are some key highlights:

Valuer: Png Poh Soon (AD 041-2009900J) for and on behalf of Knight Frank Pte Ltd.
Date of Valuation: 24 October 2017
Condition: Average
Tenancy: The subject properties enjoy an occupancy rate of about 76.4%. The total current and committed monthly gross rental is about $295,922/-, including service charge.
Method of Valuation: The comparative method of valuation.
Market Value: $205,000,000/- (exclusive of GST)
Forced Sale Value: $174,240,000/-
Fire Insurance Reinstatement Value: $46,728,000/-

Of note, there are two retail shops (560 sq ft) and 14 offices (19,840 sq ft) that are listed as vacant. Based on average rental rates of $8 psf for shops and $4 psf for offices, this equates to a loss of about $83,840 in potential rental per month. The current rental yield of the properties is 2.2% ($3,551,064 / $162,000,000). Assuming the management is able to attain full occupancy at the average rental rates, the potential rental yield will only be approximately 2.8% ($4,557,144 / $162,000,000).

I opine that at such low rental rates, the management’s strategy to “further strengthen its recurrent income stream” is deeply flawed. I would suggest that a redevelopment strategy is more likely in this case.

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