CCT may be close to selling StarHub Centre

GuocoLand among short list of potential buyers of Cuppage Road property

(SINGAPORE) CapitaCommercial Trust (CCT) could be close to selling StarHub Centre, a 10-storey commercial building at Cuppage Road, say sources.

The sources suggest that GuocoLand could be the frontrunner for the property, which is near Somerset MRT Station. It was one of the parties shortlisted to do due diligence after an expression of interest (EOI) for the property closed last month.

Frasers Centrepoint group, whose Centrepoint Shopping Centre is connected via a second-storey link bridge to StarHub Centre, is also said to have participated in the EOI exercise.

The transaction price for StarHub Centre is expected to be above its Dec 31, 2009, valuation of $268 million. The end-2009 valuation was 19.5 per cent below the end-2008 valuation of $332.8 million.

A sale of StarHub Centre would not be surprising. Earlier this year, CCT said it was reviewing plans for the non-Grade A property. It is currently zoned for purely commercial use but CCT has obtained outline planning permission from Urban Redevelopment Authority to change its use to a residential (capped at 80 per cent of gross floor area) and commercial property.

Market watchers suggest that CCT would have applied to Singapore Land Authority seeking a lease top-up to 99 years but a decision has probably not been made. The site has a remaining lease term of about 85 years.

Market watchers suggest that one issue CCT and any potential buyer would probably be hammering out is whether the sale will be subject to approval from SLA for the lease to be reset to 99 years.

The outline planning permission granted from URA for a mostly residential project is capped at the current 4.9 plot ratio that the existing property is already built up to.

StarHub Centre received Temporary Occupation Permit in 1998. It stands on a site with 99-year leasehold tenure starting Feb 1, 1996.

Its land area is 67,916 sq ft. Based on a 4.9 plot ratio and an 80 per cent cap on a residential project, a redevelopment scheme can yield about 266,230 sq ft of residential space, which would be equivalent to 212 apartments of an average size of 1,200 sq ft.

StarHub Centre reaped gross rental income of $18.5 million and net property income of $15.2 million for the year ended Dec 31, 2009.

The building contributed 5 per cent of the trust's net property income last year.

It has 21 tenants including Singapore Technologies Group, Kaplan Financial and Intel Technology Asia.

StarHub moved its headquarters from the building to new premises in the Ubi area last year but retains a small ihub outlet at the property to cater to corporate customers.

Earlier this year, CCT sold Robinson Point, another office block that it also classified as non-Grade A, for $203.25 million or about $1,527 per square foot of existing net lettable area, to a private fund managed by AEW Asia.

CCT will book a $19.2 million gain from the sale.

Market watchers suggest it makes sense for CCT to divest StarHub Centre rather than redevelop the asset into a mostly residential project itself as that may stoke concerns about the trust losing its focus on commercial property. Also, CCT's non-Grade A office properties did not perform as well as its Grade A stock during last year's office downturn.

CCT may be better off selling the property and reinvesting divestment proceeds to reduce debt, purchase new Grade A office properties or spruce up its existing Grade A assets.

Last month, CCT announced plans to execute a $92 million revamp of Six Battery Road - which earned about 23 per cent of the trust's net property income last year.

Source: Business Times, 24 Jun 2010