CDL to acquire Central Square for S$315m as part of Central area facelift

Citi Commercial Pte Ltd

PROPERTY developer City Developments Limited CityDev: C09 +1.29% will acquire Central Square for S$315 million as part of plans to redevelop its Central Mall properties and the surrounding area into a mixed-use lifestyle hub.

Located at 20 Havelock Road, Central Square is a 99-year leasehold commercial and residential development in the Singapore River precinct, with a remaining lease tenure of 70.7 years currently held by Far East Hospitality Trust Far East HTrust: Q5T -0.82%.

It comprises a serviced residence and commercial spaces including offices and retail units, said CDL in a  statement on Thursday (Dec 2).

Through its subsidiary, CDL Constellation, the group has entered into a put and call option agreement to acquire Central Square from FEHT for S$313.2 million and the reversionary leasehold interest of about 1.5 years from OPH Riverside Pte Ltd, a subsidiary of Far East OrchardFar East Orchard: O10 +0.93% , for S$1.8 million.

The transaction includes a potential incentive payment of up to S$18 million above the purchase consideration, subject to certain conditions being met by Dec 31, 2023, including getting planning approval for residential use.

In a separate filing, FEHT said the open market value of the property as at Oct 25 - determined by independent valuer Savills - is S$271.4 million. The divestment of the property represents a premium of 15.4 per cent to Savills'  valuation and is about 57.9 per cent above the book value of the property's leasehold interest as at end-September.

After taking into account the total divestment cost of about S$2.9 million, the estimated net proceeds for FEHT - excluding the incentive payment - would be S$310.3 million. 

The manager of FEHT said proceeds may be used to pare down debt, to fund potential acquisitions, for distribution to holders of the stapled securities and/or to finance general corporate and working capital requirements. 

On a pro forma basis in FY2020, dividend per share would come in at 2.46 cents after the divestment, compared to 2.44 cents before, if the divestment had been completed on Jan 1, 2020.

Meanwhile, Far East Orchard said the open-market value of the reversionary interest as at Apr 30, determined by CBRE and Savills, was S$900,000 and S$890,000 respectively.

If not for the deal with CDL, reversion of Far East Orchard's remaining interest in the property would have only reverted to the group upon the expiry of the remaining 70.7 years leasehold term held by FEHT.

"The disposal enables the group to realise the value of the reversionary interest now," it said in a statement.

CDL currently owns the 81,660 square feet Central Mall site comprising the freehold 7-storey Central Mall (office tower), and a cluster of conservation shop houses on a 99-year leasehold site with a remaining lease tenure of about 71 years.

Upon the acquisition of Central Square in Q1 next year, CDL plans to redevelop all the sites into a mixed-use development with commercial, hospitality and serviced apartment components.

The enlarged area has a potential gross floor area uplift of 67 per cent to 735,500 sq ft, from the current 441,650 sq ft.

CDL's redevelopment plan comes under the Urban Redevelopment Authority's strategic development incentive scheme.

"The strategic acquisition of Central Square crystallises our master plan to shape the precinct's transformation into a new and vibrant lifestyle hub. With the enlarged site, we can take a multi-faceted approach to the planning and design of the entire area and shape the public realm to maximise value for all stakeholders in this precinct," said CDL chief Sherman Kwek.

This marks the group's third enhancement initiative in the Central area.

It is also currently redeveloping the former Liang Court site with CapitaLand Development into an integrated project.

CDL has also commenced the redevelopment of its former Fuji Xerox Towers located at 80 Anson Road.

The proposed redevelopment will comprise a 45-storey mixed-use integrated project - 40 per cent will be dedicated for office and retail purposes 35 per cent for residential and 25 per cent for serviced apartments.

The residential component, comprising about 256 units, is slated for launch in the second half of 2022.

On Thursday, CDL shares fell S$0.12 or 1.7 per cent to S$6.78; FEHT units fell S$0.005 or 0.9 per cent to S$0.575; and Far East Orchard shares gained S$0.02 or 1.9 per cent to S$1.09.

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