CapitaLand, CDL, Ascott Reit to redevelop Liang Court

Singapore

REAL estate heavyweights CapitaLand Limited, City Developments Limited (CDL) and Ascott Residence Trust (Ascott Reit) have formed a consortium to redevelop the Liang Court site, according to filings on Thursday.

The site comprises Liang Court mall, mid-scale hotel Novotel Singapore Clarke Quay and serviced residence Somerset Liang Court Singapore.

This comes as CDL Hospitality Trusts (CDLHT) has proposed to sell its entire stake in Novotel Singapore Clarke Quay to the 50:50 CDL-CapitaLand joint ventures (JVs) and CDL.

At the same time, Ascott Reit will sell part of its interest in Somerset Liang Court to CDL. Under a put and call option agreement, Ascott Reit will sell 15,170 square metres (sq m) of the serviced residence site's gross floor area (GFA) for S$163.3 million to CDL, and retain 13,034 sq m of GFA.

The Liang Court site will be turned into an integrated development with total GFA of 100,263 sq m, subject to approval from the authorities. This will comprise two residential towers offering some 700 apartments, a commercial component, an "upper midscale" hotel with 460 to 475 rooms, and a 192-unit serviced residence with a hotel licence. The land's lease tenure will be refreshed from 57 years to 99 years.

The CDL-CapitaLand JV will own the residential and commercial components. Ascott Reit, a wholly-owned subsidiary of CapitaLand, will own the new serviced residence. CDLHT, an associate of CDL, will own the new hotel under a forward purchase agreement with CDL.

The proposed mixed-use project will open in phases from 2024.

The new serviced residence will keep its Somerset branding when it opens in the second half of 2024, while the new hotel will be operated under Marriott International's Moxy brand - a lifestyle boutique hotel concept focusing on next-gen travellers including millennials - when it is completed in 2025.

Ascott Reit will use its net proceeds from selling part of its interest in Somerset Liang Court to develop the new serviced residence, from the retained 13,034 sq m of GFA. The project development expenditure of the new serviced residence is estimated to be S$300 million. Ascott Reit noted that Somerset Liang Court is an ageing property and has been facing competition from newer hotels.

Along with the Liang Court site redevelopment, the CapitaLand, CDL and Ascott Reit consortium will also rejuvenate the river promenade next to the property.

In a separate filing, CDLHT said it is looking to sell Novotel Singapore Clarke Quay for S$375.9 million to the consortium as part of the site redevelopment. The 403-key hotel has a GFA of 34,909 sq m and a lease expiring on May 1, 2077.

The Novotel sale price is 87 per cent more than the original purchase price of S$201 million in 2007. It is also 1.9 per cent and 1.4 per cent higher than the independent valuations by Colliers International and Knight Frank respectively.

Net proceeds from the divestment will be some S$369.3 million, CDLHT said. At the discretion of its managers, a portion of these proceeds may be used to make distributions to CDLHT stapled securityholders.

The Novotel sale is expected to be completed in April 2020.

Meanwhile, once the new hotel is fully built in Novotel's place, CDLHT will purchase the property at the lower of either S$475 million or 110 per cent of actual development costs incurred in developing the new hotel. This will be funded through debt financing.

Separately, CDLHT also said on Thursday that it will buy the W Singapore luxury hotel in Sentosa Cove for S$324 million from Cityview Place Holdings, a wholly-owned subsidiary of CDL.

The W Singapore acquisition will be funded by internal resources, including proceeds from the Novotel sale and/or debt financing. This deal will likely be completed in early-2020.

W Singapore, managed by Marriott, has 240 rooms and a GFA of 25,374 sq m. Its 99-year lease began on Oct 31, 2006.

CDLHT will hold extraordinary general meetings in January 2020 to seek approval from its stapled securityholders for the Novotel sale and W Singapore purchase.

Both deals will enable CDLHT to further penetrate the lifestyle hotel market at different tiers or price points in Singapore amid growing global demand for lifestyle hotels with strong identities and story-telling potential, the trust said.

Its pro forma gearing would be lower at 35.3 per cent, with the W Singapore purchase and Novotel sale, and before the acquisition of the new hotel. This leaves ample debt headroom of S$512.7 million, assuming a 45 per cent gearing limit for CDLHT as a whole. The trust will then have the flexibility to pursue suitable acquisitions to further grow its income base, it said in its filing.

Shares of CapitaLand fell S$0.04 or 1 per cent to S$3.62 on Thursday after the announcement, while CDL ended down S$0.11 or 1 per cent at S$10.50. Units of Ascott Reit were flat at S$1.31, and CDLHT closed unchanged at S$1.59.