OG Buys Orchard Serviced Apartments From Ascott

Source : The Straits Times, Sep 9, 2008

DEPARTMENT store chain OG has bought a block of serviced residences that form part of its Orchard Point store in Orchard Road.

The local unlisted retailer paid The Ascott Group $100 million in cash for the 88-unit Somerset Orchard.

Ascott, the serviced apartment arm of property heavyweight CapitaLand, had originally sold OG the four-storey Orchard Point retail podium in 2001.

At that time, it agreed to offer the retailer the right of first refusal for the serviced residences on the sixth to 10th storeys of the building.

Ascott will continue to manage the residences for 15 years, with an option to renew the contract for another 10 years, it said in a statement yesterday.

The deal yields Ascott a gross gain of $43 million and works out to a price of about $1,530 per sq ft for the property, which has about 74 years left on its lease.

The price is 'reflective of current market sentiment', said Mr Donald Han, managing director of property consultancy Cushman & Wakefield.

'It looks cheap compared to other Orchard Road residences, but the location is not as prime as Orchard Turn and it's a leasehold property that's about 20 years old,' he added.

Mr Han suggested that OG's reason for the purchase was to have 'total envelope internal and external control' of the building.

'If they have plans to refurbish it, they can create a more thematic approach for the entire development.'

For Ascott, the sale would be in-keeping with its asset-light goal. 'It's a win-win scenario,' Mr Han said.

Generally, property experts viewed the purchase favourably for OG.

'From an investment point of view, it's a good deal,' said Mr Craig Ward, director of commercial investment at Jones Lang LaSalle.

'Anyone buying into the serviced apartment market has pretty strong foresight.

'There isn't huge amount of supply of serviced apartments but there is a substantial amount of demand, as serviced apartments provide a good alternative for hotels.'

Ms Sherene Sng, head of retail at Knight Frank, agreed. 'The shortage of hotel space in Singapore now is quite acute, so I would think any company on the lookout for business opportunities would jump at the chance to own these serviced apartments; they're the flavour of the month at the moment.'

While it is unlikely that OG will convert the serviced residences to shops, there is a possibility it could top up the lease to a fresh 99 years and convert the block to residential apartments, said Mr Han.

'It may not be the intention for OG's purchase, but the value of the property could be in topping up the lease in the future,' he said.

Serviced apartments are zoned for residential use, not hotel use, which could make it easier to convert.