Time for CICT and CICT to move forward with divestments
Dropped in interest coverage ratio
The Reit interest coverage ratio, that is to say the ratio between earnings and interest expenses, has decreased steadily over time from 3.9 times at Sep 30, 2020 to 3.1 at Sep 30 2023.
If you take a closer look at these three properties, it will give you an idea of how much money could be made if they were sold.
CICT has a 45-percent stake in a Joint Venture that owns Citadines Raffles Place. CapitaLand Development is the owner of 45 percent and Mitsubishi Estate Co has the remaining 10 percent.
The CapitaSpring Building, where the serviced apartment is located, was built on a site that has a 99 year leasehold tenure. It began on February 1, 1992, so there are still 57 years left on the lease. While parties are believed to have expressed an interest in the property, no buyer has been identified. Market watchers believe the owner will ask at least S$1million per room.
Bukit Panjang Plaza occupies a land with a 99 year lease that began Dec 1, 1994. This means there are about 70 years left to the lease. The Bukit Panjang bus station, MRT/LRT and shopping centre are all close by.
At Dec 31, 2022 the property had a value of S$344,000,000, with a capitalisation ratio of 4.8%. A valuation of S$2,098/sq ft is calculated based on the NLA (163,998 sq ft) and a capitalisation rate of 4.8 per cent.
In the four-storey complex, tenants include FairPrice Finest Supermarket, Harvey Norman Gadget Hub & Kopitiam.
JLL has reportedly set the asking price at S$470m for Bukit Pantjang Plaza’s ongoing EOI.
CICT purchased it in two phases: in 2003 and 2007 Over the years it has invested in this asset and completed many asset enhancements. It may not be able to see more value-add opportunities in the near term. After the opening of Hillion Mall next door in 2017, the competition for patrons and shoppers at this retail location became more intense.
Agents quietly started to gauge demand for 21 Collyer Quay in late 2013. The market talked about a potential buyer interest between S$3,600 – S$3,700 on the NLA.
CICT however is said be looking at a price higher than S$3,900 psf. This would translate to S$830 to S$852million. At Dec 31, 2022 the building was valued S$634M, based upon a 3.45% cap rate. The valuation was S$2,977/sq ft on a NLA 213,000 sq ft.
WeWork is the sole tenant of this 21-storey office building.
CICT bought the property in 2005 through a sale and leaseback agreement with HSBC. CICT found WeWork before HSBC’s April 2020 lease ended. The flexible workspace provider’s seven-year deal began in December 2020, after a S$45m renovation of the building.
Analysts believe that 21 Collyer Quay’s development potential is fully utilized. The building’s gross floor area is a little over the maximum allowed by the Urban Redevelopment Authority based on its latest Master Plan.
WeWork, according to reports, has paid on time its rents to its Singapore tenants, despite the fact that its US parent filed for Chapter 11 protection in November of 2023.
Observers claim that CICT would still be able, if WeWork left the building, to lease 21 Collyer Quay from a new flexible space operator. Reit will be able to charge higher rents for finding multiple tenants. To do so, the Reit may have to invest in renovating the property once again to adapt the building for typical end-users of office space.
CICT (CapitaLand Integrated Commercial Trust ) : C38U +1.5% (CICT), according to some observers, is in a hurry in the property world to divest certain 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.
Market rumours suggest that a separate, low-key EOI process will be completed next week for Bukit Panjang Plaza. A suburban mall owned by a real estate investment trust.
There was a lot of interest in 21 Collyer Quay last year. The price ranged from S$3,600-S$3,700/sf for the net lettable area.
CICT was approached late last year by a potential buyer for the 21 Collyer Quay building. It is a prime office location, with unobstructed Marina Bay views and a coveted 999 year leasehold land tenure.
Citadines’ decision to sell Raffles Place makes sense from a strategic perspective, as serviced apartment rentals are not CICT’s specialty.
Bukit Pantjang Plaza, 21 Collyer Quay and CapitaCommercial Trust were all acquired by the former CapitaMall Trusts CMT and CCT before they were renamed in 2020 and merged to form CICT.
Singapore’s biggest Reit could have decided that these assets were optimised. CICT can unlock value by selling these assets for a price significantly above their latest valuations.
CICT might divest the 21 Collyer Road property at a higher valuation than its current value, rather than face all this uncertainty.
To begin with, in the current high interest rate environment, the Reit may use a portion of its divestment proceeds for debt reduction.
CICT aggregate leverage was at 40.8% as of September 30, 2023. The current leverage is lower than 41.2 percent as of Sep 30, 2022. Some analysts, however, still think that the current gearing is too high and would like it to drop below 40 percent.
CICT might decide to sell 21 Collyer Road to a third party at a price higher than the valuation. No doubt the 999 year leasehold tenure of the property will attract many, but this is not what the trust really needs. CICT may invest the proceeds from the sale of CapitaSpring in CapitaSpring. It still has a five-year option to buy its partners’ shares in the commercial component (approximately 673,000 sq ft) in the building. As-is, the office rents for CapitaSpring are higher than those of 21 Collyer Quay.
CICT, by factoring in CapitaSpring’s shorter land tenure, should be able extract a higher property yield, taking full ownership over the office/workspace, and retail space within the building. 21 Collyer Quay would have a lower yield.
If the above scenario pans out, CICT has executed one of Reit’s classic strategies – moving from a lower yielding asset to a more lucrative one.