CICT must continue to divest moving forward
CICT can sell 21 Collyer Road, at a premium over its current valuation. The property’s 999 years of leasehold is an attractive feature, but CICT does not need it. CICT has a call option of five years to purchase its partners’ stakes at CapitaSpring. The commercial component is approximately 673,000 sq ft. The office rents of the newly-built CapitaSpring building would be higher if they were compared to 21 Collyer Quay.
CICT could extract a better net yield from the property by taking over all of the office/workspaces and retail spaces in the building.
If all goes well, CICT could have used one of the most classic strategies for a Reit – switching from a less-yielding property to a higher yielding one.
Some observers in the property industry have noted that CapitaLand Integrated Commercial Trust CICT : C38U -0.51% is in a rush divest assets.
Last week, The Business Times reported that an expression-of-interest (EOI) exercise closed in the fourth quarter of 2023 for the 299-unit Citadines Raffles Place, which is in the CapitaSpring building at Market Street that was completed a couple of years ago.
Now, the word on the street is that a separate, low key EOI exercise will close next Monday for Bukit Panjang Plaza. It is a suburban shopping mall that the real estate investing trust (Reit), which has owned for some time, owns.
Last year there was interest in buying 21 Collyer Quay for S$3,600-3,700 psf of net lettable space.
CICT received interest from investors late last summer in the 21 Collyer Quay offices, which are described by some as a trophy building due to their prime location and unobstructed view of Marina Bay. They also have a coveted 999year leasehold land tenure.
Citadines has decided to sell the Raffles place serviced apartments because they are not CICT’s strong suit.
Bukit panjang plaza and 21 Collyer Quay have been acquired by CapitaMall Trust and CapitaCommercial Trust, respectively. This was before they were renamed CapitaCommercial Trust and merged into CICT in late 2020.
Singapore’s largest Reit has decided to optimise these assets. CICT could unlock significant value from these investments and use the proceeds for better purposes if they act at the right moment.
CICT, rather than risk all this uncertainty, may decide to sell 21 Collyer Road to a buyer at a price higher than the valuation.
Reit’s could reduce their debt by using a portion from the divestment profits, especially in light of the high interest rate environment.
At Sep 30 2023, CICT had a leverage of 40.8 percent. This is slightly less than the 41.2 % as of Sep 30 2022. But some analysts would still like to see the gearing brought down below 40 %.
CICT had purchased it in stages in 2003, and 2007. This asset has undergone significant asset improvement works over the years and it may not see additional value-add in the near future. This retail property faced increased competition from the Hillion Mall which opened in 2017.
In the last quarter of 2016, a few agents quietly gauged demand for 21 Collyer Quay. There was talk in the market that there could be some interest for the NLA in the S$3,600-S$3,700 range.
CICT has been reported to have set a higher target price, between S$830m and S$852m, which translates into a S$3,900 psf to S$4,000 psf. According to a cap of 3.45 percent, the building had a value of S$634m by Dec 31 2022. The valuation worked out at S$2,977 psf for a NLA size of 213,000 sq. ft.
WeWork has fully leased out the 21-story building.
CICT acquired this property in 2005, from HSBC as part of a lease-back deal. CICT identified WeWork as a replacement tenant before HSBC’s lease expires in April of 2020. The flexible workspace company’s seven year lease began in 2021 after a S$45m renovation.
Analysts state that 21 Collyer Quay’s potential for development has been fully realized. The building’s current gross floor area barely exceeds the maximum allowable based upon the 15.0 plot-ratio designated for commercial-zoned sites under the Urban Redevelopment Authority’s latest master plan.
WeWork’s rent payments to Singapore are on schedule, even though its US parent has filed for Chapter 11 bankruptcy protection.
Observers state that if WeWork were to leave the building, CICT still should be able find a flexible-space operator with whom to lease 21 Collyer Quay. Reit could however extract higher rental rates by finding multiple tenants within the building. In order to do this, it will have to incur additional costs to renovate the building, adapting it to end-user tenants.
Dropped ratio of interest coverage
The Reit’s interest coverage has fallen steadily, from 3.9x at Sep 30,2022 to 3.1x at Sep 20, 2023.
When you look closely at the three properties, you can get a feel for the amount of money that would be available if these were to be sold.
CICT is 45 percent owner of a joint venture which owns Citadines Raffles Place. CapitaLand Development has a 45 per cent stake, while Mitsubishi Estate Co holds the remaining 10 percent.
The CapitaSpring apartment building is located on a land with a 99 years leasehold tenure. This began on 1st February 1982. There are approximately 57 more years to go on the lease. It is believed that parties have expressed interest but no buyer has yet been identified. Market watchers predict that the owner will be asking for at least S$1m for each room.
Bukit Panjang Plaza sits on a leasehold site that has been leased for 99 years since Dec 1, 1995. That means the lease is almost 70-years old. Near the Bukit Panjang Bus Interchange and MRT/LRT Stations, this shopping centre has a 99-year lease.
As of Dec 31, 2020, the property value was S$344M, with a 4.8% capitalisation. Based on a Net Lettable Area (NLA) 163,998 sq. ft., the valuation works out to approximately S$2,098 for each square foot.
In this four-storey building, you will find FairPrice Finest supermarkets, Harvey Norman, Gadget Hub as well as Kopitiam.
JLL’s Bukit panjang Plaza EOI, currently underway, has a current asking price of S$470million.