Liang Court deal shows quirk in CapLand strategy

LAST Friday's completion of the acquisition of Liang Court mall along River Valley Road by CapitaLand and City Developments Ltd (CDL) brings together two property groups that have adopted somewhat different business strategies in the past.

With their S$400 million purchase of the mall from an entity linked to PGIM Real Estate, control of the overall Liang Court mixed-development complex has narrowed from three parties previously to just two.

The ageing complex has two other components. CapitaLand's listed unit Ascott Residence Trust already owns the Somerset Liang Court Singapore serviced residence while CDL's indirect subsidiary CDL Hospitality Trusts owns the Novotel Singapore Clarke Quay hotel.

With just two parties - CapitaLand and CDL groups - now controlling Liang Court complex, expectations are that this should facilitate planning for a redevelopment of the commercial and residential-zoned site. This would capitalise on the site's strategic location along the Clarke Quay stretch of the Singapore River; the plot is also next to the Fort Canning Station on the Downtown Line and a stone's throw from the Clarke Quay Station on the North-East Line.

Developed in the 1980s, the Liang Court complex is on a site with leasehold tenure of about 97 years from April 1980, leaving 58 years on its lease.

Some market watchers may recall that it was CapitaLand's then-listed serviced residence arm The Ascott Group which had sold Liang Court mall back in 2006 to the Asian Retail Mall Fund (II), which now sits as part of the PGIM Real Estate AsiaRetail Fund, for S$175 million.

Based on previous reports, ARMF II pumped in a further S$40 million to spruce up the mall.

Under the recently concluded transaction, CapitaLand is effectively paying S$200 million for a half-share in the mall.

Back in 2006, The Ascott Group described the sale of the mall as being in line with its asset-light strategy to divest non-core assets and reinvest the proceeds into higher-yielding assets and markets.

While one could argue that Ascott could have enjoyed a doubling in value of Liang Court mall had it held on to the asset, a possible counter to this argument may be that Ascott ended up using the sale proceeds to buy a serviced apartment block, say, in China, and the value of which may have tripled over the same period.

Also, the S$400 million pricing for Liang Court mall in the recent deal takes into account the redevelopment play for the entire complex - which could have been more difficult to crystallise, say, 13 years ago, when Ascott sold it.

That said, a traditional family-controlled property group - a category that includes the likes of CDL, Frasers Property and UOL Group - may have tended to take a more strategic, long-term view, and held on to the mall, biding for the right time to unlock its redevelopment potential, instead of selling low and buying it back at a much-higher price later on.

Quirks like these may pop up from time to time for a group such as CapitaLand with a hybrid model that blends property development with capital/fund management - and practises capital recycling, portfolio management and reconstitution to an extreme.

Still, given that the group has managed to grow its assets under management to a staggering S$100.1 billion (as at end-2018, before its acquisition of Ascendas-Singbridge; post that transaction, the figure would be S$123.4 billion) and it is targeting double-digit returns on equity - most analysts would hesitate to criticise CapitaLand's approach.