CapitaMall Trust (CMT) has bought The Atrium@Orchard office development for about S$840 million.
The Atrium@Orchard is a commercial development comprising two Grade A office towers and some ground floor retail space.
CMT said the purchase from the Singapore Land Authority (SLA) will be funded by a mix of debt and convertible bonds. Predicting a 2.1 percent initial property yield, the Trust plans to issue at least S$650 million worth of bonds. While some analysts have expressed concern, CMT said current office rent at The Atrium is low by market standards and it has room to more than double.
It expects a 4.5 percent yield to be achievable by 2010 when almost all the leases are due to expire.
CMT plans to integrate the development with the Plaza Singapura shopping mall next door, which it also owns.
Deputy Chairman of CapitaMall Trust Management, Liew Mun Leong, said the proposed merger of the two properties will create one of the largest integrated developments along Orchard Road. The combined property will have about 170 metres of prime retail frontage and over 900,000 sq ft of net lettable space.
The acquisition will also grow CMT's asset size by 15 percent to some S$6.9 billion.
With the latest purchase, CMT has revised its local target asset size from S$8 billion to S$9 billion by 2010.
Asked why CapitaCommercial Trust (CCT) was left out in the deal, CMT said it is to avoid a conflict of interest for both sides.
Pua Seck Guan, CEO of CapitaMall Trust, said: "Although The Atrium currently is predominantly an office building, our intention is to convert the office space into retail and create a synergy with Plaza Singapura.
"Since CMT owns 100 percent of PS (Plaza Singapura), it makes sense for CMT to own The Atrium at this moment, until we work out the asset plan to convert the office space into retail. As a result, we don't think it's wise to have a joint venture with CCT at this moment because that will create conflict." - CNA/so
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