CDL Paying Far East Trust $230M for Central Square to Add to Clarke Quay Project

City Developments Ltd (CDL) will acquire the Central Square complex near Clarke Quay from Far East Hospitality Trust for S$315 million ($230 million), according to a statement late Thursday, as part of a plan to redevelop its neighbouring Central Mall asset.

Singapore’s biggest non-government-controlled builder said that it has entered into a put and call option agreement to buy the mixed-use development at 20 Havelock Road i from the SGX-listed trust in a move that would potentially give it the right to develop 441,650 square feet of new space on site near the Singapore River and add one more luxury condo project to its pipeline of prime projects.

“The strategic acquisition of Central Square crystallises our master plan to shape the precinct’s transformation into a new and vibrant lifestyle hub,” said Sherman Kwek, group chief executive officer (CEO) of CDL. “This rare placemaking opportunity augments our role in rejuvenating the Singapore River precinct and aligns with our enhancement strategy to unlock the latent value of our matured asset.”

This week’s announcement is the third time in two years that CDL has undertaken a major redevelopment project in central Singapore, after the company tied up with CapitaLand in 2019 to redevelop the Liang Court complex across the Singapore River from Central Square. Then just last year the company announced plans to remake the 38-storey Fuji Xerox Tower in Tanjong Pagar into a combined commercial and residential complex.

Betting on Both Sides of the River

With CDL’s Canninghill Piers project having delivered S$1.8 billion in sales on its launch weekend last month, CDL has now jumped to the opposite bank of Clarke Quay to purchase Central Square, which in its current format includes serviced apartments, offices, shops and restaurants.

Sitting just across the Singapore River from the Canninghill Piers project, the 1999 vintage commercial and hospitality complex has 72 years remaining on its lease 99-year leasehold, with CDL planning for conversion to freehold terms.

The current outline permission obtained for redevelopment of the 31,260 square foot Central Square complex and CDL’s circa 1997 Central Mall, together with a set of adjoining leasehold shophouses owned by the buyer, allows for redevelopment of the consolidated 441,650 square feet of space into a project of up to 735,500 square feet, according to CDL.

The developer expects to build commercial, hotel and serviced apartment space on the site, and is also seeking permission to include condos in the project. CDL said that it “will be working closely with the authorities to further enhance the viability of the redevelopment scheme and potentially add in a residential component.”

Located close to Singapore’s Central Expressway, the consolidated site is also within 10 minutes’ walk of the Clarke Quay, Fort Canning and Chinatown stations on the city’s MRT network.

Some Assembly Required

To achieve its new project, CDL is leveraging Singapore’s URA Strategic Development Incentive Scheme which is designed to encourage more development of living space in the city centre, as the city’s market for luxury homes continues to sizzle.

To add to its condo pipeline quickly, the developer has provided for an incentive payment of up to S$18 million to Far East Hospitality Trust DBS Trustee should it be able to secure planning approval for residential development on the site by 31 December 2023.

Aligning the terms of Central Square’s land title with the Central Mall site is also part of the proposed deal, with CDL buying a reversionary leasehold interest for the site from an entity controlled by Far East Organisation, the sponsor of Far East Hospitality Trust for S$1.8 million. This element of the transaction would pave the way for freehold title to the Central Square Site.

Including the consideration for the privately held entity, CDL would be paying a total of S$315 million for the project or the equivalent of S$10,077 per square foot of existing gross floor area.

By combining Central Mall with the three adjoining shophouses and Central Square, CDL is assembling a 148,810 square foot site, with the first phase expected to be completed in 2027.

Far East Trust Raises Cash

For Far East Hospitality Trust, a hotel and serviced apartment REIT sponsored by Singapore’s Far East Organisation, the sale provides the opportunity to realise some income in what continues to be a challenging year.

In a statement to the Singapore exchange the manager of the trust said that the agreed price for the property represents a 15 percent premium to the asset’s open market value of S$271.4 million and would allow the REIT to book a S$112 million net gain. The deal would also help Far East Hospitality Trust bring down its aggregate leverage to 33.5 percent upon completion, from the current 41.3 percent.

“The proceeds will be used to first pare down Far East H-Trust’s debt to strengthen its balance sheet,” said Gerald Lee, chief executive of the manager of Far East Hospitality Trust. “With the increased financial flexibility, the managers can seek out opportunities to redeploy the proceeds to higher yielding assets to improve the performance of the trust.”

During the first nine months of 2021 Far East Hospitality Trust has seen revenue per available room at its nine hotels fall by 22.4 percentage points while per available unit at its four serviced apartment complexes dropped by 17.8 percent. Through the third quarter of this year the REIT’s distributable income has improved by 3.0 percent compared to the same period last year.

The unexpected announcement of the sale helped paint brighter prospects for the trust according to DBS Group Research as cited by Business Times, with analysts Geraldine Wong and Derek Tan saying the deal could provide more headroom to support its future acquisitions.

Redevelopment Rally

With Singapore’s URA having laid out incentives for development of residential space in the urban core, another CDL redevelopment project also reached a milestone this past week with the company saying in the Central Square announcement that it has started work on the former Fuji Xerox Towers project on Anson Road.

CDL had announced in August last year that it was planning to seek redevelopment permission for its aging office tower in Tanjong Pagar, at the same time that it applied to rebuild the Central Mall.

CDL now plans to convert Fuji Xerox towers into a 45-storey integrated project with 40 percent of the total floor area dedicated to office and retail use, 35 percent for residential and the remaining 25 percent for serviced apartments. For the expected 256 residential units, the company plans to begin sales in the second half of 2022.

At CanningHil Piers, CDL has worked with CapitaLand to develop an integrated project with 696 condos surrounded by dining outlets, retail stores, a 475-room Marriott hotel and a 192-unit serviced residence.

In another move expanding its residential pipeline, CDL last week agreed to acquire a residential property on Upper Bukit Timah Road, and in April of this year had teamed up with Hongkong Land affiliate MCL Land to acquire a 99-year leasehold site at Northumberland Road in the city’s Little India area for S$445.9 million.