SINGAPORE (Dec 21): Hwa Hong Corporation, the property investment and development company, is making a foray into the commercial real estate sector in the United Kingdom with its first purchase of a London office property.
Subsidiary Vantagepro Investment has signed a sale and purchase agreement to acquire a 71.39% stake in Garrett Property Holdings (GPH).
GPH holds the entire issued share capital of Capital Garrett (CGL), whose principal activity is property investment. Both GPH and CGL are companies incorporated in England and Wales.
In turn, CGL has entered into agreements with two unrelated third parties to acquire a freehold property located at 20 Garrett Street, London for a total cash consideration of GBP18.50 million ($32.37 million)
Hwa Hong says the acquisition was an off-market transaction and the consideration was arrived at after negotiations on a willing-buyer, willing-seller basis. The acquisition was completed on Friday and will be funded by a combination of bank loans and internal cash sources.
The property is located in the borough of Hackney, 650m from the Old Street Roundabout. The area is commonly referred to as East London Tech City or Silicon Roundabout as it is London’s main technology cluster with more than 1,000 technology companies located in the area.
The property has a total lettable floor area of approximately 17,500 sf and comprises office accommodation over three floors and a lower ground floor. The property is currently fully leased until Sept 9 2029 with upward only rent reviews on Sept 10 2019 and Sept 10 2024. In addition, the tenant has a right to terminate the lease on Sept 10 2021, Sept 10 2024 and Sept 10 2026.
The property produces an annual gross rental income of GBP0.61 million, reflecting a low passing rent of GBP35 psf. The passing rent represents a discount of about 30% to current estimated market rents for similar buildings in the area and represents an opportunity for positive rental reversion.
“The investment will allow the group to invest in the property through CGL and thereby expand its commercial property portfolio in London. The Investment is also in line with the group’s strategy to seek value-add opportunities in the central London commercial property market for recurrent rental income and capital appreciation. With the property’s low passing rent, the Group intends to maximise the Property's rental income through, inter alia, the upcoming rent review process in 2019,” says Hwa Hong in its filing.
The group expects the acquisition to be accretive to the group’s earnings per share at current levels of rent. The investment is not expected to have a material impact on the earnings per share and net tangible assets of the company and the group for the financial year ending Dec 31 2018.
Year to date, shares in Hwa Hong are down 4 cents to close at 28 cents on Thursday.
