Singapore (Oct 7): WeWork’s aborted IPO, announced amid questions over corporate governance, mounting losses and unrealistic valuations, has raised questions over whether the office space leasing company can meet its commitments for properties it plans to lease that are not operational yet. Among those in key global cities is 21 Collyer Quay in Singapore, better known by its former name, the HSBC Building.

In July, CapitaLand Commercial Trust’s manager announced an agreement with WeWork to lease the entire 21 Collyer Quay for seven years starting 2QFY2021. The building is on a 999-year leasehold site and has a net lettable area of around 200,000 sq ft. Its valuation is $462.2 million, which accounts for around 4.3% of CCT’s portfolio value of $10.7 billion.

Upon the expiry of HSBC’s lease in April next year, CCT will spend $45 million in asset enhancement initiatives on the building. According to the real estate investment trust, the return on investment is 9%. In response to queries from The Edge Singapore, a CCT spokeswoman reiterates that “there is no change” to its binding lease agreement with WeWork.

WeWork is also a tenant at Funan, which belongs to CapitaLand Mall Trust. Here, WeWork operates a co-working space on two floors in the North Office Block, as well as part of Level 4. Since WeWork is already operational at Funan, the IPO postponement is unlikely to have any impact on CMT.

21 Collyer Quay contributes about 5% to CCT’s gross rental income and about 4.3% to its net property income (NPI). Assuming the property contributes about 4% to distributable income, this would work out to around $13 million a year.

On July 18, CCT announced it had placed out 105.2 million units and raised $220 million to partly finance the €250.9 million ($379.8 million) acquisition of Main Airport Center Frankfurt. The building has an estimated NPI yield of 4% based on 90% occupancy, and is likely to boost distributable income by around $14 million a year.

Separately, the loss of income from 21 Collyer Quay when HSBC vacates the building could cause distributable income to fall by around $13 million over a 12-month period. The net impact of the loss of income from 21 Collyer Quay would be distribution per unit (DPU)-neutral between FY2019 and FY2020.

In the event WeWork rescinds on the lease of 21 Collyer Quay in 2021, CCT has the option of getting new tenants as the building is located a stone’s throw from the bustling Raffles Place MRT station.

Separately, Keppel Real Estate Investment Trust announced it is divesting Bugis Junction Towers for $547.5 million, which is above its valuation of $515 million. The sale price is $388 million or 243.2% above the purchase price of $159.5 million back in 2006. The transaction will contribute capital gains of about $378.1 million, after expenses. Since Keppel REIT revalues its properties annually, it will book an accounting gain of $18.3 million when the sale is completed this year.

For 1HFY2019, Bugis Junction Towers contributed $8 million or 6.6% to the ­REIT’s total income of $121.4 million. In an announcement on Oct 1, Keppel REIT said that pro forma DPU for FY2018 would fall to 5.52 cents from 5.56 cents. This can be easily topped up with capital gains from the sale of Bugis Tower, as unitholders await proceeds to be recycled into higher-yielding buildings.

Keppel REIT last traded at an annualised DPU yield of 4.4%. CCT is trading at a yield of 4.3% and CMT’s annualised DPU excluding the impact from Funan is 11.78 cents, translating into a yield of 4.55%.

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