Ascendas Reit, CapitaLand Development in joint venture to redevelop 1 Science Park Drive

ASCENDAS Reit A17U : A17U 0%has formed a joint venture with CapitaLand Development (CLD), the development arm of CapitaLand Group, to invest S$883 million to redevelop 1 Science Park Drive into a life science and innovation campus.

This follows the sale of the site, which houses the TÜV SÜD PSB Building, by the real estate investment trust (Reit) to the joint venture for S$103.2 million.

CLD owns a 66 per cent interest in the joint venture, while Ascendas Reit, a member of CapitaLand Investment Limited (CLI), owns the remaining 34 per cent.

The sale price is about 4.9 per cent higher than the average of 2 independent valuations by CBRE and Savills, which valued the property at S$97.0 million and S$99.7 million respectively as at Oct 1.

The consideration is also about 14.6 per cent above the book value of S$90 million for the property as at end-December 2020. The estimated net accounting gain for Ascendas Reit from the disposal is approximately S$12.5 million after providing for transaction-related expenses. The property was acquired in 2005 for S$35 million.

The 1 Science Park Drive property sits on a site area of 31,856 sq m and has a current maximum allowable gross plot ratio (GPR) of 1.2.

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The upcoming life science and innovation campus on the site will have a total gross floor area (GFA) of 116,200 sq m with a maximum allowable GPR of 3.6.

Expected to be fully completed by 2025, the new campus will comprise 3 interconnected Grade A buildings and an event plaza with 3,700 sq m of retail, food & beverage outlets and supporting amenities. One of the buildings will be 15 storeys tall, while the other 2 will be 9 storeys tall.

About 80,000 sq m, or 71 per cent of the 112,500 sq m of business park space, has been designed to accommodate biomedical research and development (R&D) activities.

In a joint press release, Ascendas Reit and CLD said 1 Science Park Drive caters to demand from tenants in new economy sectors such as biomedical sciences, digital and technology, which are continuing to expand in Singapore amid a greater focus on healthcare, deep tech and accelerating digital transformation.

"As the master developer, owner and operator of Singapore Science Park 1 (SSP 1), we have been steadily unlocking the precinct's potential through redevelopment and land intensification initiatives, and will continue to do so in the next few years," said CLD CEO Jason Leow.

"We are seeing resilient demand for quality business park properties in Singapore, and are encouraged that several reputable technology and biomedical R&D players have already expressed strong interest for the upcoming spaces at SSP 1," he added.

"In line with our proactive customer and asset management strategy, we have successfully transited the tenant and created the opportunity to divest 1 Science Park Drive as well as recycle the capital into a transformative redevelopment," said William Tay, CEO of the manager of Ascendas Reit.

"On a stabilised basis, the investment is expected to generate a net property income yield of approximately 6.3 per cent, recreating value for Ascendas Reit's unitholders. We will also have the first right to acquire the remaining 66 per cent interest when the redeveloped property achieves stabilised occupancy," he added.

The Reit manager said the net proceeds from the divestment of the 1 Science Park Drive property would primarily be used to fund its share of the total investment cost, which would come up to S$132.7 million, including transaction cost.

It added that the remaining cost will be funded via debt, with no significant impact expected on its aggregate leverage.

On a pro forma basis, the transaction would translate to a distribution per unit (DPU) accretion of 0.076 Singapore cent or 0.5 per cent for Ascendas Reit. This is assuming Ascendas Reit had disposed the property on Jan 1, 2020; that it had a 34 per cent interest in the joint venture throughout 2020; that the redevelopment was completed on Jan 1, 2020, and achieved an occupancy rate of more than 90 per cent through the year; and that the redevelopment is funded by the joint venture based on a funding structure of 60 per cent debt and 40 per cent equity.

"With the ongoing redevelopment of 3 Science Park Drive that will introduce a serviced residence, we are confident that SSP 1 will evolve into an even more attractive business address with vibrant work-live-play elements," said CLD's Leow.

Units of Ascendas Reit closed S$0.01 or 0.3 per cent higher at S$3.10 on Nov 15, before the announcement.