Seĺl.... property & rental is too over priced here in a slowdown economy
Reply to @Wind22i : amaze how the condo in Tampines was oversubscribed
My apologies, I added one more paragraph of my correspondence with the CFO. It is displayed at the top before the Q&A.
My correpondence with IR Team/CFO:
[Edited] That being said, we would like to inform you of the work that the team is doing at Hersing Centre (now renamed as “ERA APAC Centre”) to create value from the asset. We are in the midst of the changing the tenant mix as some of the previous tenants were paying below market rents. This takes time as we are not able to do it overnight. After we took over the building on 10 Sep 2018, we are required to serve 6 months’ notice (as stated in the tenancy agreements) to certain tenants requesting them to move out. These tenants would all move out latest in March 2019. It is important to source for the right tenants – whilst this will take effort and time, it will generate greater value for the Group over the longer-term. [Edited]
Q: What are the plans to attract tenants for the vacant units and what are the actions taken so far to attract tenants for the vacant units.
A: As a real estate agency with more than 6600 salespersons, we have no lack of help to rent out commercial spaces. In fact, ERA salespersons closed more than 3400 commercial rental transactions in 2018 (about 9 transactions every day) and this forms <5% of the revenue of the Group. We have received some offers to rent certain vacant units but the price is not right. There is a difference between not being able to rent out and not willing to rent out (cheaply).
For example. There was an F&B outlet on the ground floor paying $10 psf. This is a quality space with good double frontage and high transient traffic. We used to own this building when we were part of Hersing before Aug 2013 and at that time, this unit fetched $20 psf when it was rented to a restaurant. Whilst the F&B outlet’s tenancy had another 2 years to run, we took appropriate steps and the F&B outlet has recently vacated the space.
We have budgeted $1m-$2m to spend on retrofitting works on the interior and exterior of the building this year to improve the appearance. This will help to improve footfall and attract tenants to the building.
There will be some renovation work to be done at Level 3 and 4 next month before ERA moves in. Once that happens, the building will get a lift in terms of vibrancy as we will conduct a series of trainings and functions for our ERA salespersons. There will also be many ERA salespersons taking up office spaces at level 3 and 4 and this will contribute to our top-line.
Q: “Will the building to be cashflow negative?”
A: The building will be cashflow negative and the company has never shied away from that point. We aim to repay the loan in 20 years, the principal repayment a year is $2.9 million.
It is important to note that when we have executed our plans, the rental income will be more than sufficient to cover the operating expenses as well as the mortgage interest. This building will be earnings accretive to the Group. Besides, $2.9 million would not cause a huge drain to the cashflow of the Group and would definitely not affect the company’s policy to declare at least 50% of its earnings as dividends.
The decision to buy ERA APAC Centre was not based on financials alone. The location (right next to HDB Hub) allows us to secure a permanent place of business for the Group and will cater for the expansion of the Group’s real estate agency business. Our agents’ count have increased from 5,800 as of January 2017 to 6,660 as of today. We used to occupy 4 locations at Mountbatten Square, Zhongshan Park, SLF Building and HDB Hub level 3. We have since vacated SLF Building (in early 2018) and recently just moved out from Zhongshan Park. We will move out of HDB Hub level 3 once the current lease expires. Eventually, we will only have 2 locations at Mountbatten Square and ERA APAC Centre.
Some investors may not like the idea of buying an asset but we are proud to say that we are the only real estate agency in Singapore to own a building (OrangeTee building does not belong to OrangeTee). You cannot find a similar commercial building anywhere else in Toa Payoh.
Reply to @aero73 : Ok. GD luck! Huat ah