SINGAPORE (July 13): There is a reason for the new development at Golden Shoe Car Park (GSCP) to be tall and fat, says Lynette Leong, CEO of the manager of CapitaLand Commercial Trust.
“It’s going to transform the skyline of Singapore. Our development is going to be tall and fat. It shows that the floor plate size is much larger than that of surrounding tall buildings,” says Leong.
The yet-to-be-named new skyscraper will have 51 floors and stand 280 m tall, putting it on par with UOB Plaza 1, One Raffles Place and Republic Plaza Tower 1. But the new building will have column free floor plates as large as 23,300 sf, with the smallest floor plate at 22,200 sf.
That puts the skyscraper ahead of its competition. Floor plates of Republic Plaza range from just under 9,000 sf to 15,000 sf, and for One Raffles Place floor plates are a modest 9,000 sf.
The total gross floor area will be 1.05 million sf. The office net lettable area (NLA) will be 635,000 sf, with retail at just 12,000 sf and 299 serviced residences managed by The Ascott.
CCT will bear the cost of building the food centre with 44,000 sf of NLA although this will be given back to the Ministry of the Environment and Water Resources. The building will have four levels of “green oasis” which can be used as collaborative space.
In addition to five floors with space for 350 carpark lots, the development will also feature facilities such as showers to encourage a car-lite workforce and healthy living.
The two architects involved include BIG which designed the Google campus in Silicon Valley.
The total Project Development Estimate (PDE) is $1.82 billion, and CCT will take a 45% stake in the GSCP project to keep development assets within 10% of total deposited property. Its joint venture partners are CapitaLand (45%) and Mitsubishi Estate Co (10%).
Stabilised yield on cost is estimated at 5% based on estimated rentals of $12-14 psf per month, and revenue per available room of $255 to $275 for the serviced residences component.
CCT will hold 45% of the $1.82 billion development and finance its $819 million portion with cash from recent sales and debt.
The project will be held under Glory Office Trust which will have a long-term lease agreement to Glory SR Trust for the serviced residence component.
“We’ve structured it with flexibility in mind,” says Leong, referring to the serviced residences component which is held in a separate sub-trust.
“In the future if there is a need to de-link it from the office trust, we can exit. Because it’s a trust structure, it would be appealing to potential REITs that require tax transparency,” she adds, referring to Glory SR Trust.
DPU impacted by divestments
In preparation for its 45% stake in GSCP, CCT divested a 50% stake in One George Street for $591.6 million and Wilkie Edge for $280 million.
In 1Q17, GSCP accounted for 2% of total NPI of of $69.9 million, Wikie Edge contributed 3% to NPI and OGS contributed 11%. CCT also announced a DPU of 2.4 cents in 1Q. For FY2016, DPU was 9.08 cents.
With NPI shrinking by as much as 10%, DPU could fall as much as 8%. RHB research expects DPU to be negatively impacted in FY2018 and 2019 by 5-8% and has a “take profit” recommendation.
“We’re cognisant of the fact that after the sale of these assets there is a loss in income,” Leong says.
She adds that she is still thinking through whether to use some of the cash from the divestments to top up DPU.
“It’s always good to have more cash, and we’re always looking out for good acquisition opportunities.”
In its breakdown of GSCP’s PDE by cost components, the land cost is 8.9% or $161.1 million of total PDE. This is a 14.6% premium above the valuation of GSCP at $141 million.
The largest cost component of the new development at 52.6% is differential premium and other land related costs of $957.8 million to be paid to government authorities by end Aug. CCT’s portion will be $431 million.
Construction cost is likely to be $576.1 million or 36%, and other costs including financing and marketing $125 million or 6.9%.
CCT has a call option to acquire CapitaLand’s 45% stake at development cost less NPI, compounded at 6.3% pa as well as Mitsubishi Estate Co’s 10% stake development cost less NPI compounded at 5% pa. Its pro forma gearing is likely to be around 35%. If CCT had taken a 100% stake in the project, its gearing would have shot up to 43%. “That was too high for comfort,” Leong says.
Maybank Kim Eng is positive on the redevelopment. “Our preliminary estimates suggest a development surplus of 2.9 cents for CCT’s 45% stake,” the report says. “With its conservative 35% pro-forma aggregate leverage, before divestment of Wilkie Edge, we believe CCT has sufficient capacity to acquire another property to fill its income void during redevelopment.”
The report points out that independent valuers raised their valuations for CCT’s portfolio as at June 30 due to a 15-25 bps compression in capitalisation rates. Maybank Kim Eng has a $1.81 target and reiterates a buy recommendation.
The new building will be completed in 2H2021.
Units in CCT closed at $1.67 on Thursday.
This story first appeared on The Edge Singapore