SINGAPORE Telecommunications (Singtel) Singtel: Z74 0% will jointly redevelop its Comcentre headquarters for an estimated cost of more than S$2 billion, including land costs, it said in a press statement on Wednesday (Feb 23).

 

This comes as Singtel looks to maximise the Comcentre site' s potential and increase building efficiency, allowing the company to unlock value from the property.

 

Upon its estimated completion in 2028, the new Comcentre on 31 Exeter Road is expected to have a total gross floor area of over 110,000 square metres (sq m) comprising Grade A office buildings, a retail component and Singtel' s existing Orchard Exchange that houses telecom infrastructure.

 

The telco plans to incorporate sustainable designs and digital technologies into the office, styling it as a " next-generation office development" that will house Singtel' s headquarters and offer hybrid workplaces to its other tenants.

 

Singtel will remain the anchor tenant, occupying 30 per cent of the space, with the remaining space to be leased out and serve as a recurring income stream.

 

The developer for the project has yet to be decided, although Singtel has shortlisted 2 companies in the first phase of the tender based on the developers' design concept, asset valuation and track record. Market watchers told The Business Times that the 2 parties shortlisted could be Temasek-linked companies, for instance, CapitaLand Development and Mapletree.

 

Singtel said the tender process will close in March 2022 and the company expects to make the final appointment by May.

 

JLL will advise the transaction in its capacity as a real estate adviser.

 

Following the redevelopment and as a part of its capital recycling strategy, Singtel plans to divest Comcentre to a joint venture (JV) company it will form with the appointed developer.

 

Singtel will hold the majority stake in this new JV, the press release said.

 

The telco has also obtained in-principle approval from the Singapore Land Authority to extend the lease on all the lots that make up Comcentre to 2089.

 

Singtel Group CEO Yuen Kuan Moon said: " Maximising the unique development potential of Comcentre will significantly enhance its value in a vicinity where Grade A office developments are in short supply. We strive to optimise the capital we can unlock from existing assets to fund our growth initiatives including 5G and the regional expansion of our data centre business."

 

He added: " The redevelopment of our headquarters also supports our vision to build a greener and sustainable future and will further facilitate our efforts to reach net zero for our own operations."

 

In preparation for the redevelopment, Singtel will relocate from Comcentre in 2024 and employees will shift to temporary spaces at other Singtel premises across the island.

 

Karamjit Singh, chief executive of real estate consultancy Delasa, said: " It makes sense for Singtel to team up with an experienced professional real estate set-up, an active player at the forefront of occupier requirements and building efficiency. Interests can be aligned through co-investment."

 

Desmond Sim, chief executive of Edmund Tie & Company, described Singtel&rsquo s approach for the redevelopment of its Exeter Road property as &ldquo definitely a private sector-led urban renewal that will be advantageous&rdquo .&ldquo If the redevelopment is designed to take advantage of a large site which allows big floor plates, coupled with modern technology, chasing occupiers should not be any issue,&rdquo he added.

 

In similar vein, Tricia Song, head of research for Southeast Asia at CBRE, said: &ldquo It makes sense to develop a primarily office project in this location. Given the lack of new office supply in the Orchard Road area, there will be strong rental demand for Grade A offices in this location.&rdquo

 

In a research note after Singtel' s announcement, DBS Group Research observed that the planned divestment would add an estimated 2 to 3 per cent to Singtel&rsquo s future earnings while making the company asset lighter. 

 

Assuming Singtel will have a 51 per cent stake in the JV and that the monthly rental rate in 3 years will be S$12-15 per square foot and a cap rate of 4 per cent, analyst Sachin Mittal sees the telco taking in additional pre-tax earnings of S$48-60 million.  

 

He also believes that there will be more divestments ahead for the telco, based on previous reports of Singtel appointing an investment bank for its divestment of loss-making unit Amobee, and the possibility of it selling its North American business Trustwave.

 

The analyst maintained &ldquo buy&rdquo with an unchanged target price of S$3.13, as he observed Singtel&rsquo s holding company discount of 38 per cent is quite high compared to its historical average of 21 per cent over the last 7 years.    

 

Comcentre has been Singtel' s headquarters since 1979 and is currently built on a site area of 19,252.6 sq m. It was the first skyscraper in Singapore to house microwave dishes on the rooftop to transmit signals.