SINGAPORE (Dec 13): The redevelopment of Liang Court will not only benefit CDL Hospitality Trusts (CDLHT) and Ascott Residence Trust (Ascott REIT) but also City Developments (CDL) and its joint-venture (JV) partner CapitaLand.
The Liang Court site is 12,925.4 sq m and has a current built-up area of more than 109,000 sq m. The 403-room Novotel Clarke Quay takes up 34,908.7 sq m of gross floor area and the 197-room Somerset Liang Court, owned by Ascott REIT, 28,203.85 sq m. The rest of GFA is taken up by a retail mall.
In May, PGIM Asia Retail Fund (PGIM), owned by Frasers Property and Frasers Centrepoint Trust, sold the mall to the CDL-CapitaLand JV for $400 million. This appeared overpriced at the time, but in hindsight, the transaction seems to have been carefully considered.
CDL-CapitaLand and Ascott REIT have received in-principle approval for a lease top-up to a fresh 99 years for the site. “Subject to approval from the relevant authorities, the proposed integrated development with a total GFA of 100,263 sq m will comprise two residential towers offering around 700 apartment units, a commercial component, a hotel and a serviced residence with a hotel licence,” a joint CDL-CapitaLand announcement dated Nov 21 says.
Because of zoning restrictions, the redevelopment is conditional on a 60% residential portion, with the rest commercial. As a result, Ascott REIT and CDLHT have to reduce their portion of GFA in their respective strata segments, while CDL-CapitaLand will increase theirs for the residential units.
As part of the redevelopment plans, Ascott REIT announced that it would divest 15,169.68 sq m of GFA to CDL for $163.3 million, for a gain of $41.5 million. Ascott REIT will retain 13,034.17 sq m of GFA and redevelop it into a 192-unit serviced residence with a hotel licence by 2024 at an estimated cost of $300 million. CDL will develop a 460- to 475-room hotel on a 15,541 sq m site. The new hotel will be sold back to CDLHT under a conditional put-and-call option agreement in 2025. The CDL-CDLHT transactions require unitholders’ approval.
For the 60,158 sq m for residential use, CDL-CapitaLand will develop 700 units in two residential towers. The cost of the GFA is below $879 psf, excluding the top-up premium. Nearby residential units are being sold at $2,500 to $2,700 psf.
DBS Group Research says: “At an estimated land cost of $1,000 psf (or all-in cost estimated at $1,400 psf, including top-up premium to 99-year lease), we believe the price is attractive, and unattainable when compared [with] prices at recent government land sales (GLS) for sites within the city. The estimated value of $2.9 billion for the completed redevelopment represents an attractive return of close to 30% for the project.”
Credit Suisse also estimates the land cost at $1,000 psf, including lease top-up costs. “We believe the average selling price of $3,000 psf for residential to be achievable, given the mixed-used nature of the site, with nearby 99-year leasehold new launches already achieving similar ASPs today,” Credit Suisse says. It has “overweight” ratings for both CDL and CapitaLand.
Of course, CDL and CapitaLand are the third-largest and largest locally listed developers, with Hongkong Land Holdings ranking second. Since acquiring Ascendas- Singbridge, CapitaLand has become well diversified geographically and by asset type. While the Liang Court redevelopment should add to its revenue, earnings and book value, the upside is likely to be modest.
On Dec 10, CapitaLand’s share price closed at $3.70, up 20.5% year-to-date and giving it a market cap of $19 billion. CDL closed 31.6% higher YTD at $10.54, with a market cap of $9.58 billion.
