CapitaMall Trust Bags Atrium For $839.8m

Source : The Business Times, May 23, 2008

It will strengthen its retail presence by integrating Atrium, Plaza Singapura

CapitaMall Trust (CMT) yesterday emerged the winner to clinch the Atrium@Orchard with a purchase price of $839.8 million or $2,249 per square foot (psf) of net lettable area (NLA) from the Singapore Land Authority.

This has raised the value of its assets to $6.9 billion and prompted the trust manager to revise its local targeted portfolio size from $8 billion to $9 billion by 2010.

This acquisition confirms an earlier BT report which pointed out CMT as one of the two final contenders for the Atrium and estimated the price of the sale to be $2,200-2,300 psf of NLA.

CMT is set to strengthen its retail presence at the premier Orchard shopping belt, given its plans to create more than 100,000 sq ft of prime retail lettable area at the Atrium.

Situated next to one of CMT's existing properties, Plaza Singapura, Atrium comprises two Grade A office towers of seven and 10 storeys and some ground floor retail space.

CMT said that it plans to integrate Atrium with Plaza Singapura to create a combined 170 m of prime retail frontage along the Orchard Road strip to create duplex flagship stores and over 900,000 sq ft of net lettable space.

By decanting and converting lower yielding spaces at the Atrium and changing the use of gross floor area, the retail net lettable area on levels 1 and 2 of the property is expected to grow from the current 16,092 sq ft to 100,590 sq ft.

Pua Seck Guan, CEO of CMT, said in a briefing yesterday that the retail enhancement works at Atrium is expected to take place within the next three years.

'With the improved integrated asset plan and the enhanced direct connectivity from the Dhoby Ghaut MRT interchange station to Level 3 of Plaza Singapura, the values of both assets are expected to increase,' he added.

He noted that the grade A office space at the Atrium is currently under-rented, which provides opportunities for value creation. The current office rentals are locked in at an average $5.87 per square foot per month (psfpm), resulting in an initial property yield of about 2.1 per cent.

Using the recent renewal of an office lease at Atrium at $13 psfpm as a gauge, Mr Pua said that there is room for average office rental to double to $10-12 psfpm by 2010-2011, even after taking into account rental cap conditions in certain anchor tenants' leases.

Assuming that all the office leases are being renewed at $10 psfpm today, the estimated property yield today will be about 4.5 per cent, Mr Pua said.

The majority of the leases - some 89 per cent of the total committed NLA - will be up for renewal in 2009 and 2010. Only 7.9 per cent of the total committed NLA is due for renewal this year.

The acquisition of the Atrium, brokered by CB Richard Ellis, is expected to be completed by end-August. The total acquisition costs, including other fees and expenses, will work out to $850 million.

CMT will fund it with the issuance of $650 million worth of convertible bonds and the balance from the $395 million proceeds from its medium term notes programme that it has issued.

Moody's yesterday affirmed CapitaMall's 'A2' rating but changed the outlook to negative, citing the increase in gearing ratio to 45 per cent from 35 per cent and other execution risks related to the redevelopment of Atrium.

But Mr Pua said that he is confident that the gearing ratio will come down soon.

The five-year convertible bonds (CBs) due 2013, which is fully underwritten by Goldman Sachs, has a coupon rate of one per cent, a yield to maturity of 2-3 per cent per annum and a conversion premium of 20-35 per cent over the share price. Even if the CBs are fully converted, the funding provides yield accretion on a stabilised basis, CMT said.

Yesterday, CMT was trading at $3.51, 12 cents lower than Wednesday's close before its units were halted, pending the announcement.