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Mapletree Industrial Trust to start its largest redevelopment project costing S$263m
MAPLETREE Industrial Trust (MIT) plans to redevelop a flatted-factory cluster at Kallang Way into a high-tech industrial precinct at a total project cost of about S$263 million, the manager of the mainboard-listed real estate industrial trust (Reit) said.
This will be MIT’s largest redevelopment project to date, and is another strategic step in growing its high-tech buildings segment, the manager announced in a filing on Wednesday morning.
The proposed redevelopment of the Kolam Ayer 2 Cluster includes a build-to-suit facility for a global medical device company headquartered in Germany. The facility will be customised to the German firm’s specifications and plans.
MIT has sufficient financial capacity to fund the project, the manager said. Assuming the redevelopment is fully funded by debt, the aggregate leverage ratio is expected to increase progressively from 33.8 per cent as at March 31 to 36 per cent upon completion of the project.
The German medical device company will be the anchor tenant, and has committed to lease the build-to-suit facility for an initial lease term of 15 years with annual rental escalations and an option to renew for two additional five-year terms.
Its new seven-storey build-to-suit facility will account for about 24.4 per cent of the enlarged gross floor area (GFA). This will serve as the German firm’s Asia-Pacific hub, and include facilities for manufacturing as well as research and development.
Subject to approvals from the relevant authorities, construction is expected to start in the second half of 2020 and complete in the second half of 2022.
The income contribution from the anchor tenant is expected to be accretive to MIT’s distribution per unit.
The Reit manager will also provide an assistance package for existing tenants at the cluster affected by the redevelopment.
The Kolam Ayer 2 cluster at 155, 155A and 161 Kallang Way sits on a land of about 346,270 square feet (sq ft) located near the MacPherson neighbourhood and a short drive to the central business district.
It comprises two seven-storey flatted factories and an amenity centre. Flatted factories are multi-storey industrial buildings with multiple tenants and common facilities such as goods lifts.
The cluster is zoned for Business 2 use with its land lease tenure of 43 years starting from July 1, 2008.
The redevelopment will increase the utilised plot ratio from 1.5 to 2.5, and increase the total GFA to about 865,600 sq ft. One of the buildings with GFA of 211,000 sq ft will be developed as the build-to-suit facility.
For the other blocks with total GFA of about 654,600 sq ft, the Reit manager will target high value-add and knowledge-based businesses from the advanced manufacturing, information and communications technology sectors.
The manager will also pursue opportunities to develop customised spaces for end-users.
The project will reposition the flatted-factory cluster as a high-tech industrial precinct and use untapped plot ratio, said Tham Kuo Wei, chief executive of the Reit manager.
The anchor tenant’s long-term lease commitment will also provide stable income and increase MIT’s portfolio’s weighted average lease to expiry, he noted.
The S$263 million total project cost includes the development cost of the build-to-suit facility and the S$70.2 million book value of the cluster as at March 31 before the commencement of the proposed redevelopment.
The Kolam Ayer 2 Cluster accounted for 1.8 per cent of MIT’s gross revenue for the fiscal year ended March 31, 2019.
Under MIT’s tenant assistance package, existing tenants at the cluster will receive an extended notice period of 12 months at preferential gross rental rates for their remaining leases.
They will not be required to reinstate their premises to the original bare condition, and will not need to compensate for early termination if they move out before their leases expire.
The Reit manager said it will "actively" help all existing tenants to relocate to alternative clusters within MIT’s portfolio.
It has set aside more than 469,200 sq ft of space at alternative MIT clusters for tenants considering relocation, equivalent to about 1.6 times of the space presently occupied by them. For new three-year leases, the units will be offered at 7 per cent to 33 per cent lower than the average rental leases for new leases at the alternative clusters.
Units of Mapletree Industrial Trust were trading up two Singapore cents at S$2.28 as at 9.25am on Tuesday.