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in the heart of Orchard Road
WISMA ATRIA
ESSENTIALS
| Street
Address |
435
Orchard Road |
| Postal
code |
238877 |
| Area |
Orchard Road |
| Technical
data |
| Height |
59 m |
195 ft |
| Floors
(over ground) |
22 |
| Year
(end) |
1986 |
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In 1986 the
side cladding of the escalators received a Singapore
Institute of Architects (SIA) Micro-Architectural Design
Award. |
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Shops are
organised around an atrium cladded in crystallised glass
panels. Two glass lifts and a series of escalators provide
the circulation between the shopping levels. A marine
aquarium, the first of its kind in a shopping complex in
Singapore, is located in the basement. |
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The difference
in level across the site, together with the limited
vehicular access, lends itself to a plan form that maximises
shop frontage exposure and direct pedestrian access from the
Orchard mall, while providing vehicular drop off and carpark
access at the frontage off Orchard Turn. The basement has
direct access into Orchard MRT station. |
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Wisma Atria
was the first major commercial development on the south side
of Orchard Road. Its massing comprises a curtain walled
office tower and a porcelain enamel cladded podium. On both
front and rear facades of the office tower an inverted
keyhole shaped recess creates a unique feature on an
otherwise uninterrupted elevation. Designed by DP
Architects |
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NEWS STORIES
Wisma Atria, 74% owned by Macquarie MEAG Prime Reit, could see its toppish
rentals taking a hit
Much has been said about how the bid by
CapitaLand and Sun Hung Kai Properties (SHKP) for the landmark Orchard Turn
site will lift capital values of properties with prime Orchard Road
frontage.
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| When CapitaLand and
SHKP open their mall on Orchard Turn - CapitaLand Group's president
and CEO has set the ambitious target of doing so by Christmas 2008 -
the pedestrian flow may naturally head to the new mall, taking with
them their spending power away from Wisma Atria and Ngee Ann City. |
But now some market watchers are starting
to look at the possible negatives stemming from the bid. A potential
casualty could be Macquarie MEAG Prime Reit (MMP Reit), which owns 74 per
cent of Wisma Atria right next to the Orchard Turn site and 27 per cent of
Ngee Ann City next door.
Sure, one could argue that the opening of
a new mall next to Wisma Atria will enhance its draw, strengthening the
whole area's attraction to shoppers. A win-win situation, as the cliche
goes. The reality may be a zero-sum game. Let's see why.
The Reit's prospectus issued at the time
of its initial public offering (IPO) in September lists a valuation of
$4,810 per square foot of net lettable area (NLA) for the retail space at
Wisma. For months, property market watchers have been saying this figure is
too high.
Overvalued?
CapitaLand has openly said its break-even
cost for the Orchard Turn mall will be about $2,500-$2,550 psf of NLA, and
factoring in a 16-40 per cent development profit, it is estimating a higher
capital value of $2,950-$3,500 psf - which is far lower than the valuation
for MMP Reit's. That could lend credence to the view that MMP Reit's Wisma
space is overvalued, especially considering that the lease for the Wisma
site has about 55 years left, compared with a fresh 99-year lease for the
Orchard Turn site.
Of course, one could argue that Reits are
all about yields, and so long as the manager of MMP Reit manages to extract
high enough rentals from its Wisma property to achieve the 5.5 per cent or
so distribution yield at which the trust's units are currently trading on
the stock market, the valuation for Wisma should not take a hit from the
lower break-even cost for the Orchard Turn mall component.
That should be the case - at least for
now. But it could be a different story when CapitaLand and SHKP start
leasing the 644,000-690,000 sq ft NLA in their Orchard Turn mall - which is
at least five times the 122,000 sq ft of retail space that MMP owns at Wisma.
CapitaLand has shown figures that it needs to achieve average monthly rents
of $18-$19 psf to meet its desired yield objectives. This works out to a
7-7.5 per cent net yield based on the break-even cost and a lower 5.5-6 per
cent if CapitaLand and SHKP exit the investment at about $2,950-$3,500 psf
of NLA.
MMP, on the other hand, is reporting its
5.5 per cent distribution yield on a much higher average rent of about $27
psf for Wisma Atria.
In short, CapitaLand and SHKP can afford
to offer competitive rentals relative to Wisma to fill their new mall.
The sheer scale of competition from the
new property could depress some of the toppish rentals that MMP is currently
able to fetch at Wisma Atria.
Lower rentals mean lower income and lower
valuation for MMP Reit if distribution yields are to be maintained. In
short, its price could take a hit.
Of course, MMP can always hope that
retail rents on Orchard Road will go up in the next few years - thanks to
the Singapore tourism growth story, including the pulling power of two
integrated resorts with casinos and the rejuvenation of Orchard Road.
There is another challenge. Right now,
MMP has a default captive shopper base in the form of MRT commuters exiting
from Orchard MRT Station who tend to flow naturally into Wisma Atria which
is connected at the same level as the MRT Station at Basement 2, assuming
they are not headed for the Scotts Road exit.
When CapitaLand and SHKP open their mall
on Orchard Turn - CapitaLand's president and CEO Liew Mun Leong has set the
ambitious target of doing so by Christmas 2008 - the pedestrian flow may
naturally head to the new mall, taking with them their spending power away
from Wisma Atria and Ngee Ann City. Lower shopper traffic in a mall means
lower sales, which translates to lower rental collections (including
turnover rents). This could hit MMP's bottom line and its unit price.
There is also another interesting point
and one that is expected to be watched by investors - the short tenure of
the underlying land lease for Wisma Atria.
In this, Wisma is somewhat different from
other leasehold properties which have been put up for sale and where the
developer has had to seek a lease upgrade to 99 years from the state, which
granted the original 99-year lease on the site.
In the case of both Wisma Atria and Ngee
Ann City, the leases for the sites were granted not by the state but by Ngee
Ann Kongsi, a philantropic foundation. Currently, the Wisma site has a
remaining lease of about 55 years, while the site on which the Ngee Ann City
complex was built has a remaining lease of 66 years.
When the leases on these two Orchard Road
properties run out, there is no guarantee that Ngee Ann Kongsi will renew or
top up the lease.
Different objectives
To elaborate, with the state as lessor,
there is a very good chance that it will top up a lease when presented with
a redevelopment proposal - unless, of course, the proposal is not in sync
with the long-term strategic use of the site mapped out by the planning or
other government authorities.
Doing otherwise could potentially affect
confidence in the 99-year leasehold property market. Who would want to
invest in 99-year properties knowing that it is almost certain the state
will take back your property when the lease runs out?
Ngee Ann Kongsi's objectives, on the
other hand, are different - to maximise returns on its assets for its
beneficiaries. It could choose not to renew the underlying land lease for
Wisma Atria in particular - since it does not have any stake in the complex,
unlike Ngee Ann City, where it continues to hold an interest - if it can get
a higher price by granting a new lease to another party than to extend the
lease for the owners of Wisma.
But having a competitor mall next to
Wisma Atria may not necessarily be all bad news for MMP. It could pressure
owners of older Orchard Road properties to spruce up.
And if they are unwilling to do so, it
may create pressure on them to sell their assets or team up with someone who
sees value in revamping them. That presents buying opportunities for MMP and
its associated parties, including Germany's Ergo group.
Of course, MMP can be sure its
competitors like Suntec Reit and CapitaMall Trust will also be out in force
looking at the same deals. Now more than ever, the heat is on for MMP to
acquire more properties to reduce its dependence on Wisma Atria and Ngee Ann
City - before Christmas 2008. - by
Kalpana Rashiwala SINGPORE
BUSINESS TIMES 27 Dec 2005
Ergo open to selling Wisma office
space
It's looking at at least $85m for the 12 floors: sources
German insurance giant Ergo's 12 floors
of offices at Wisma Atria totalling 99,134 sq ft are in the market for at
least $85 million, sources told BT.
Ergo took control of the office tower and
a big chunk of the retail space at the prime property (with a remaining
lease of about 60 years) in a $451 million asset securitisation deal earlier
this year.
BT understands that it wants to keep its
125,700 sq ft of shop space at Wisma Atria, which boasts arguably the
choicest retail location in Singapore above the Orchard MRT Station.
'They want to focus solely on retail in
Orchard Road and are happy concentrating their office assets in the Central
Business District, where they have stakes in Temasek Tower, the Pidemco
Centre site, Capital Square and The Adelphi,' a source close to Ergo told BT
recently.
'For Wisma, Ergo has indicated right from
the outset that if there is somebody interested in the office component,
they would be happy to talk. But they are are not in a hurry to offload the
space. The market is not that great,' he added.
A market watcher suggested: 'I think Ergo
may be feeling a bit overweight in the office sector right now.'
Ergo last year took a half share in
CapitaLand's unlisted Eureka Office Fund which has stakes in Temasek Tower,
Pidemco Centre (being redeveloped) and The Adelphi. The fund bought the
space for a total of $875 million.
Just a couple of weeks ago, Ergo struck a
deal for the securitisation of Keppel Land and Rodamco's Capital Square in
the Raffles Place area in a deal that valued the property at $490 million.
That works out to a price of $1,300 psf
of lettable area or $1,200 psf of strata area, resulting in net yields of
about 6 and 6.25 per cent respectively.
Ergo's involvement in that deal is
expected to be similar to that of Wisma Atria, where Ergo and its associates
hold junior B bonds issued during the securitisation. These bonds are
stapled with preference shares with a conversion option that will allow Ergo
and its partners to own 100 per cent of the Wisma space at the end of their
five-year term.
In exchange, Ergo and its fellow junior B
bond holders will have to redeem the two other classes of bonds - senior and
junior A - issued under the securitisation. The $451 million asset
securitisation for Wisma Atria imputed the 125,725 sq ft of shop space
(excluding the Isetan department store space) at the mall at about $2,911
per square foot, or a total of $366 million, and the office tower at about
$850 psf, or $85 million.
The office tower is currently more than
90 per cent occupied and fetches an average gross monthly rent of $5.50 psf,
resulting in a net yield of above 5.5 per cent.
- By Kalpana Rashiwala Singapore
Business Times 25 Nov 2002
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