CICT should continue with divestments in coming years
Dropped coverage ratio for interest
The Reit’s interest-coverage ratio (that is, the ratio between earnings to interest costs) has steadily decreased from 3.9 multiples at Sep. 30, 2022 to just 3.1 multiples at September 30, 2023.
Looking at the three houses in detail gives an idea of what kind of proceeds could be generated if sold.
CICT currently holds a 45% stake in a partnership that owns Citadines Raffles Place. CapitaLand Development, which owns 45%, and Mitsubishi Estate Co., which holds the remainder 10%, are joint venture partners.
The CapitaSpring property, wherein the serviced apartments are located, is on land that was leased for 99 years starting on Feb 1, 2002. That leaves about 57 remaining years. Some parties have shown an interest, but a purchaser has not yet been identified. Market observers expect the owner’s price per room to be at minimum S$1 million.
Bukit Panjang Plaza was built on land that had a 99-year tenure starting Dec 1,1994, so the lease has almost 70 years to run. The Bukit Panjang shopping centre is close to the Bukit Panjang buses interchange and MRT/LRT stops.
As of December 31, 2022, this property was valued at S$344,000,000 with a capitalisation percentage of 4.8 per cent. Based on a NLA of 163,998 ft2, the valuation comes out to S$2,098/ft2.
Tenants of the four storey mall include FairPrice Finest grocery, Harvey Norman Gadget Hub Kopitiam and Kopitiam.
JLL says that the price they are asking for Bukit Pajang plaza, in their ongoing EOI exercise, is approximately S$470m.
CICT bought it in two stages: 2003 and 2007. It has undertaken significant asset improvements on this property over the years. However, it does not believe that there is any more value to be added in the near-future. Since the opening in 2017 of the Hillion Mall adjacent to this retail property, the competition has become more fierce for customers.
Some agents were quietly gauging demand late last year for 21 Collyer Quay. In the market, there was some talk that there was potential interest in buying the NLA for S$3,600 up to S$3,700.
CICT wants to charge a premium of S$3,900 – S$4,000 per square foot, or between S$830 – S$852 billion. On Dec 31, 2020, the building value was S$634M based on cap rate of 3.45%. This valuation equates to S$2,977/sqft for an NLA measuring 213,000 sqft.
WeWork has the full lease of the 21-story tower.
CICT obtained the property back in 2005 via a Sale-and Leaseback agreement from HSBC. CICT sought WeWork for the property before HSBC’s existing lease expired in 2020. The flexible workspace providers’ seven-year rental began in December of 2021 following a S$45,000,000 renovation.
Analysts report that 21 Collyer Quay’s full development potential has already been tapped. The building has a gross floor surface area that is just a bit higher than what’s allowed under the Urban Redevelopment Authority latest Master Plan.
WeWork appears to be paying its Singapore rents on time, despite having filed Chapter 11 bankruptcy proceedings in the US in November 2023.
Observers point out that if WeWork decides to exit the building then CICT will still be able lease 21 Collyer Quay with a replacement operator of flexible spaces. Reit is able to get higher rents from the building if they can find multiple tenants. The Reit will need to invest again in the building and adapt it to fit the needs of typical office tenants.
CICT : CapitaLand Integrated Commercial Trust, C38U +1.5% seems to be in a hurry.
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.
Market rumours are circulating that a separate and low-key EOI is scheduled to end next week at Bukit Panjang Plaza.
There was an interest in purchasing 21 Collyer Quay, which is located at S$3,600 to S$3,700 net leasable area.
CICT has received interest in 21 Collyer Quay, a building that some have described as a “trophy asset” for its location with views of Marina Bay unobstructed and a coveted 999year land tenure.
Citadines, Raffles, is a good example of a sale that makes strategic sense. Serviced apartments aren’t CICTs forte.
Bukit Panjang Square and 21 Collyer Quay had been purchased by former CapitaMall Trusts CMT (CapitaMall Trust) and CCT (CapitaCommercial Trust) before being renamed, and then merged together in late 2021 to form CICT.
CapitaSpring
CICT, instead of taking on this risk and uncertainty, may decide to sell 21 Collyer Road in a more expensive price. Although the 999-year term of the leasehold property is appealing, it is not necessary for the trust. CICT would be able to invest the sale proceeds in CapitaSpring. There is a five year call option period for it to acquire the partners’ stakes of approximately 673,000 ft2 in the commercial portion. According to the current situation, office rentals in CapitaSpring’s newly constructed building will be higher than at 21 Collyer Quay.
CICT will be able, after factoring in CapitaSpring’s short land tenure to the price, to achieve a higher yield on the net by taking ownership of the entire building, including the retail space and the offices/workspace.
If the above strategy pans, CICT executed one classic strategy of a REIT – switching a lower-yielding assets to a greater-yielding one.
Singapore’s most important Reit may believe that it has optimised its assets. CICT is presented with the opportunity to sell its investments for a substantial premium over the current market valuations. If it takes advantage of this opportunity, it can unlock the value and put the sale proceeds to a better use.
Rather then bear all the uncertainty and risks, CICT can take advantage of the opportunity to sell 21 Collyer Road with a premium on its valuation.
Reit investors could, for starters, use the proceeds of their divestments to pay down debt, especially given the current interest-rate environment.
As of 30 September 2023, CICT’s aggregate leverage was 40.8%. This is a slight decrease from the 41.2 Percent at Sep 30,2022. Nevertheless, some analysts believe that this level of gearing remains high and wish to reduce it below 40 Percent.
