DBS spending $1b for stake in new home

PHOTO: DBS spending $1b for stake in new home

Holdings is buying a 30 per cent stake in the building which houses its headquarters for over $1 billion to help manage its rental cost.

In a statement yesterday, the bank said it is buying the 30 per cent interest in Marina Bay Financial Centre Tower 3 from a joint venture of Hong Kong's Hutchison Whampoa and Cheung Kong groups for $1.035 billion.

The Hong Kong companies are controlled by Li Ka Shing, Asia's richest man.

MBFC Tower 3 is an award-winning 46-storey international Grade A office building with about 1.35 million square feet of net lettable area.

DBS is the anchor tenant, occupying more than 600,000 sq ft across 18 floors.

It was in October that the bank moved to MBFC Tower 3, which houses DBS headquarters, its innovative flagship branch, a state-of-the-art dealing room, and some 4,800 employees.

The building is owned by Central Boulevard Development Pte Ltd (CBDPL), a private company which is owned in equal one-third shares by the vendor, an indirect unit of Hongkong Land and a subsidiary of Keppel Land Properties Pte Ltd, the statement said.

The deal is structured as a purchase from the vendor of the 30 per cent equity stake and its associated shareholder's loan, for about $1.035 billion.

Both parties also entered into a conditional put option agreement for DBS to take up the vendor's remaining 3.33 per cent equity stake in CBDPL and its associated loan, for an estimated $115 million.

DBS, which will pay for the stake in cash from internal funds, expects the acquisition to be completed by year-end.

Property consultants wonder at DBS taking a minority stake in the building.

They also note that in 2010, Cheung Kong and Hutchison Whampoa sold their one-third interest in Phase One of MBFC to related Suntec Real Estate Investment Trust while K-Reit bought parent Keppel Land's stake.

Phase One consists of MBFC Towers 1 and 2.

The consultants said the price paid by DBS, estimated at $2,555 per sq ft of net lettable area, looks fully valued.

Grade A office average rent, which fell 13.5 per cent this year as more topquality buildings were completed, is expected to stabilise in 2013, according to CBRE data.

DBS chief executive Piyush Gupta said "the decision to acquire a stake in our new headquarters in MBFC Tower 3 enables us to better manage our occupancy costs in the long term".

Taking a stake in the building makes no difference to the rent DBS has to pay but it helps to offset the rental expense as the bank can benefit from equity accounting of an associate.

"Structurally, it helps DBS manage the rental cost. The rent is offset by the earnings you get," said Michael Sia, DBS head of investor relations.

DBS said that independent property valuer Savills, in a report dated Nov 1, stated that the market value of a one-third undivided interest in MBFC Tower 3, subject to existing and proposed tenancies, was about $1.137 billion.

DBS also said Danny Teoh Leong Kay, an independent director of DBS, is also a director of Keppel Corporation Ltd, which has an interest in the deal through Keppel Land Properties Pte Ltd.

Accordingly, Mr Teoh has abstained (and will continue to do so) from all deliberations and voting on all board resolutions relating to the acquisition.