Jan 21, 2010

Plan for flats at StarHub Centre

CapitaCommercial awaits OK from agencies to make better use of block

By Harsha Jethnani

THE prime StarHub Centre office building in Cuppage Road could be partly turned into a residential complex.

A significant slice of the well-sited block - just a stone's throw from Centrepoint and Somerset - could be turned into flats.

CapitaCommercial Trust Management, the manager of owner CapitaCommercial Trust (CCT), said the building's potential was not being maximised as a commercial block. It also had lower than usual occupancy rates in the third quarter of last year.

The trust manager disclosed in a results statement yesterday that an outline planning permission has been granted by the Urban Redevelopment Authority. This specified that as much as 80 per cent of the gross floor area could be used for residential development. Approvals are yet to be given by other government bodies. If they are granted, the firm will revisit the plan.

While one of the firm's buildings faces a makeover, another - Robinson Point - is about to leave the stable. Its $203.25 million sale to AEW Asia should be completed by April, generating a gain of about $19.2 million. The sale price is at an 11.4 per cent premium over its fair valuation of $182.5 million.

The deal - and a robust fourth quarter from CCT - signals that better times are here again for the property giants. Higher revenue and improved operating margins have allowed CCT to increase its fourth-quarter distributable income by 39.3 per cent to $52.9 million.

The stellar result has seen distribution per unit jump 38.2 per cent to 1.88 cents for the three months to Dec 31.

Net property income for the quarter rose 22 per cent, from $65.6 million in 2008 to $80 million, thanks largely to cost-savings and lower property taxes.

Additional revenue from positive rent reversions and growth in its acquired assets, particularly the Wilkie Edge building bought in December 2008 and the office block One George Street acquired in July 2008, were also behind the income rise.

The strong results helped the firm to end the 12 months to Dec 31 by increasing distributable income by 29.7 per cent to $198.5 million.

Net property income for the full year rose 28.6 per cent to $300.2 million. Its estimated distribution per unitis 7.06 cents, 29 per cent up on 2008's 5.48 cents, after adjusting for rights issues.

Half-year estimated distribution per unit of 3.73 cents will bepaid out around Feb 26. Net asset value per unit fell from $2.97 in 2008 to $1.41 as of Dec 31 last year.

CCT's portfolio office occupancy rate bucked the trend in Q4 last year, increasing to 94.8 per cent as opposed to industry statistics of 91.2 per cent.

The fourth quarter saw the smallest decline in falling rental rates in five consecutive quarters. Rental rates fell by 8 per cent and 10 per cent for Grade A and prime office space respectively.

The firm's key focus will be to seek out quality assets that can render sustainable and long-term returns, said Ms Lynette Leong, CEO of CapitaCommercial Trust Management. 'Our Grade A assets have been most resilient to market stresses. Our core strategy is to reconstitute our portfolio to increase our exposure to Grade A properties.'

One strategy is to enhance asset value via enhancements until divestment seems to be the ideal option. Proceeds from divestments will go into acquiring better-quality Grade A type buildings or be ploughed back into working capital and asset enhancements of existing projects. The Robinson Point deal illustrates the strategy in operation.

CCT also disclosed that it has secured 20 per cent of leases expiring this year while 87 per cent of last year's gross rental income has been committed for 2010. Advanced negotiations are under way with a major tenant at Raffles City Tower, a property contributing 29.3 per cent of CCT's net property income, after which positive rental reversions can be expected.

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