CCT to augment portfolio income with proposed acquisition of remaining 60.0% interest in CapitaGreen
Continued strengthening of CCT’s foothold in Singapore’s Central Business District
Singapore, 23 May 2016 – CapitaLand Commercial Trust Management Limited (CCTML), the Manager of CapitaLand Commercial Trust (CCT or the Trust), is pleased to announce its proposed acquisition of 60.0% of the units in MSO Trust for a total acquisition outlay of approximately S$393 million. MSO Trust is a special purpose sub-trust which holds CapitaGreen, a Grade A office tower. Currently, MSO Trust is jointly owned by CapitaLand Group (50.0% interest), CCT (40.0% interest) and Mitsubishi Estate Asia Pte Ltd (MEA) (10.0% interest). Subject to the necessary approval from its unitholders, CCT intends to exercise a call option to acquire CapitaLand’s and MEA’s entire interest in MSO Trust. Upon the completion of the proposed acquisition, CCT will own 100.0% of CapitaGreen through MSO Trust.
Located on the site of the former Market Street Car Park, in the heart of Singapore’s Central Business District (CBD) near the Raffles Place and Telok Ayer Mass Rapid Transit stations, CapitaGreen is a new Grade A premium office tower with net lettable area (NLA) of approximately 703,000 square feet (sq ft). The tower was developed at a total cost of S$1.3 billion1 , below the budget of S$1.4 billion, and completed four months earlier than the typical duration required for a building of such scale. Designed by Pritzker Prize winner Toyo Ito, CapitaGreen’s environmentally sustainable and inclusive design has garnered it numerous local and international awards, including the accolade of Best Tall Building in Asia and Australasia conferred by the Council of Tall Buildings & Urban Habitat.
As at 31 March 2016, CapitaGreen’s committed occupancy was 92.8% with a well-spread lease expiry profile. The property has no leases expiring prior to 2018 which avoids the period of large, new supply in the office market. Given its excellent location, modern Grade A specifications and unique architectural design, the building has attracted tenants comprising multi-national corporations across different industry sectors including insurance, technology, energy and commodities, as well as banking and financial services.
The total acquisition outlay for 60.0% of MSO Trust is approximately S$393 million. This comprises the estimated purchase consideration of S$183.4 million 2 , share of MSO Trust’s existing unitholders’ loans and accrued interest of S$198.5 million and other acquisitionrelated expenses. The total acquisition outlay is expected to be funded through borrowings from committed bank facilities. CCT’s aggregate leverage as at 31 March 2016 was 30.1% which took into account CCT’s 40.0% share of MSO Trust’s total borrowings of S$890.0 million. Following the acquisition, CCT’s pro forma aggregate leverage could rise to 37.7%, after taking into account the total acquisition outlay of approximately S$393 million and assumption of 60.0% interest in MSO Trust’s borrowings, the latter of which will be S$534.0 million on the completion date of the proposed acquisition. The higher pro forma aggregate leverage would be significantly below the regulatory limit of 45% and also aligned with the Trust's capital management strategy to keep aggregate leverage below 40%.
Mr Soo Kok Leng, Chairman of the Manager, said, “CapitaGreen has become a truly iconic “green” landmark in Singapore’s CBD with its signature design illuminating the city skyline. Its excellent location, premium finishing and vibrant tenant community will further strengthen CCT’s foothold in Singapore’s CBD. The proposed acquisition will also complete the value creation cycle resulting from the redevelopment of Market Street Car Park which started in 2011, and is testament to the successful execution of our portfolio reconstitution strategy. CCT’s ownership of CapitaGreen will increase from 40.0% to 100.0% post-acquisition, which is projected to generate higher returns for CCT’s unitholders and augment the quality of the Trust’s portfolio.”
Ms Lynette Leong, Chief Executive Officer of the Manager, said “We expect the proposed acquisition to be accretive to the Trust’s distribution per unit (DPU). On a pro forma basis3 , CCT’s 1Q 2016 DPU would have risen by 1.4% to 2.22 cents from the reported 2.19 cents with the proposed acquisition. Additionally, CapitaGreen’s contribution to the Trust’s portfolio net property income would have increased from 6% as at 31 March 2016 to approximately 14%3 , enhancing the Trust’s portfolio resilience, diversity and quality. The value of CCT’s investment properties is expected to increase from S$7.5 billion as at 31 December 2015 to about S$8.4 billion4 , and CCT’s portfolio NLA including its proportionate joint venture interests, from 3.2 million sq ft to 3.6 million sq ft after the proposed acquisition. Given CapitaGreen’s strong attributes, there is potential upside to income contribution to CCT with the continued leasing up of the remaining office space.”
Key conditions for Acquisition and Valuation
As CapitaLand is a controlling unitholder of CCT, the proposed acquisition of 50.0% units in MSO Trust held by CapitaLand is considered as an interested person/party transaction (IPT) under the Listing Manual of Singapore Exchange Securities Trading Limited (SGX) and the Property Funds Appendix of the Code of Collective Investment Schemes. As such, the acquisition of CapitaLand’s interest in MSO Trust is subject to the approval of CCT’s unitholders at an extraordinary general meeting to be held at an appropriate time, during which CapitaLand has to abstain from voting.
According to the Property Funds Appendix, in the case of an IPT, two independent valuations of the property must be obtained, with one of the valuers commissioned independently by the trustee of CCT. CBRE – an independent property valuer appointed by CCTML, and Knight Frank – an independent property valuer appointed by the trustee of CCT, have valued CapitaGreen at S$1,599.0 million (S$2,274 psf) and S$1,602.0 million (S$2,278 psf) respectively as at 6 April 2016. These values take into account CapitaGreen’s remaining 57-year leasehold land tenure. The agreed market value of CapitaGreen is S$1,600.5 million (S$2,276 psf), which is the average of the two independent valuations.
The exercise of the call option by CCT for the 60.0% interest in CapitaGreen is also conditional on a market valuation which must be equal to or above the hurdle price. The hurdle price is S$1,585.8 million based on actual costs incurred since commencement of the development in 2011 less net income received and compounded at 6.3% p.a. Total development cost was reported to be S$1.3 billion upon completion, and CCT, CapitaLand, and MEA have agreed that the market value of CapitaGreen was above the hurdle price as at 6 April 2016. Accordingly, CCT has 150 days from the aforesaid date to obtain approval from its unitholders in order to exercise the call option.
Summary of CapitaGreen
1 Total development cost included a differential premium and other land related costs of S$651.5 million paid to the government authorities.
2 The purchase consideration is derived from 60.0% of MSO Trust’s adjusted net asset value of S$305.6 million after taking into account the agreed market value of CapitaGreen of S$1,600.5 million (equivalent to S$2,276 per sq ft of NLA), and other liabilities.
3 Based on the assumption that the proposed acquisition of 60.0% interest in CapitaGreen was completed on 1 January 2016 and CCT held and operated the property through to 31 March 2016.
4 Comprised CCT’s existing portfolio valuation as at 31 December 2015 and CapitaGreen’s agreed market valuation as at 6 April 2016.