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CDL Hospitality Trusts to sell Novotel hotel for S$375.9m, buy W Singapore hotel for S$324m

CDL Hospitality Trusts (CDLHT) will sell Novotel Singapore Clarke Quay, part of a Liang Court site for redevelopment, for S$375.9 million and make an up-to-S$475 million forward purchase of a new hotel that will be part of the new integrated development.

In a bourse filing on Thursday, CDLHT said it will also buy W Singapore hotel at Sentosa Cove for S$324 million.

The 403-key Novotel hotel will be sold to a consortium led by City Developments Limited (CDL) and CapitaLand, and that also includes Ascott Residence Trust. Located at River Valley Road, it has a gross floor area (GFA) of 34,909 square metres (sq m) and a lease which expires on May 1, 2077.

CDLHT will get about S$369.3 million in net proceeds from the sale, which will be potentially used for the repayment of existing debt, distributions to security holders and funding future acquisitions, including the W Hotel Acquisition.

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The sale price is 87 per cent more than the original purchase price of S$201 million in 2007. It is also S$7.2 million or 1.9 per cent higher than independent valuer Colliers International Consultancy & Valuation's assessment, and S$5.4 million or 1.4 per cent higher than the valuation by another hired independent valuer, Knight Frank.

The forward purchase will be for S$475 million or 110 per cent of the new hotel’s development costs, whichever is lower, said CDLHT.

It will be paid for in cash over four tranches, and funded through debt financing, with the actual method of funding to be determined closer to the completion when payment is due.

Colliers and Knight Frank have valued the new hotel at S$481 million and S$478 million respectively as at Oct 15.

The sale of Novotel is expected to complete in April 2020, while purchase of the new hotel, which is likely to have 460 to 475 keys and a 15,541 sq m GFA, will be completed in 2025.

The consortium buying Novotel has plans for an integrated development on the Liang Court site, and the new hotel will be a part of that.

It will have a fresh 99-year lease, and is expected to fall under Marriott International's Moxy hotel brand, a lifestyle boutique hotel concept that appeals to next-gen travellers, including millennials.

The W Singapore hotel at Sentosa Cove, also part of the Marriott brand, has 240 rooms and a GFA of 25,374 sq m, and a 99-year lease that began on Oct 31, 2006.  

CDLHT will buy it with internal resources, potentially including proceeds from Novotel's sale and debt financing.

The purchase is expected to complete in early 2020.

All the deals are subject to various conditions, including approval from CDLHT's stapled securities holders and the relevant authorities.

CDLHT’s managers will likely hold extraordinary general meetings in Jan 2020 to seek approval from security holders.

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

"Through the W Hotel and the new hotel, CDLHT will also benefit from continued long-term exposure to Singapore, which is the fifth most visited city in the world and attracts both leisure and business travel, given its status as an international financial centre and renowned MICE destination," they added.

CDLHT will be able to preserve its majority Singapore portfolio weightage through the W Hotel even after divesting Novotel. 

As at Sept 30, with the acquisition of the W Hotel combined with the divestment of Novotel, and prior to the acquisition of the new hotel, CDLHT’s pro forma gearing would be lower at 35.3 per cent.

It said this leaves it ample debt headroom of S$512.7 million, assuming a 45 per cent gearing limit for CDLHT as a whole.

CDLHT currently has six hotels comprising 2,718 rooms in Singapore. After completion of the latest proposed deals, it will have seven hotels comprising more than 3,000 rooms in Singapore.

CDLHT closed unchanged at S$1.59 on Wednesday.