Getting connected — but at a cost.
CapitaMall Trust Management has agreed to buy The Atrium@Orchard from the government for $839.8 million and amalgamate it with Plaza Singapura next door.
Their shopfronts will be merged and enhanced. There will also be an elevated walkway, providing Plaza Singapura users with direct connectivity to the busy Dhoby Ghaut MRT interchange station in The Atrium's basement. This is expected to increase the value of both buildings.
That's the good news. The bad news for tenants is that CapitaMall Trust believes that The Atrium is currently "under-rented". It may be 98-per-cent full, but their new landlord thinks it can double monthly rents from an average $5.87 psf to between $10 and $12 psf by 2010 to 2011, even after taking into account the rental cap conditions in certain leases. Key tenants include Barclays Capital and Temasek Holdings, which is a large shareholder in the trust's parent, CapitaLand.
CapitaMall trust's deputy chairman Liew Mun Leong said: "The proposed integration of The Atrium@Orchard and Plaza Singapura will create one of the largest integrated developments along Orchard Road, with approximately 170m of prime retail frontage and over 900,000 sq ft of net lettable space."
Some 600,000 sq ft of this would be shop space, comparable to The Paragon.
The Atrium currently comprises two Grade-A office towers of seven and 10 storeys over a single floor of ground floor retail space. Office tenants on the lower floor will be rejigged to make way for double-storey shops.
Mr Pua Seck Guan, CapitaMall trust's chief executive, said: "There is an excellent opportunity to capitalise on the long frontage along the prime Orchard Road strip to create highly visible duplex flagstores."
To help finance the acquisition, CapitaMall Trust is placing out $650-million worth of convertible bonds. The building's initial yield of approximately 2.1 per cent is higher than the bonds' coupon rate of 1 per cent. This yield is expected to progressively improve in coming years at it increases rents.
The acquisition will grow CapitaMall Trust's asset size to $6.9 billion, reinforcing its position as Singapore's largest real estate investment trust.
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