http://www.businesstimes.com.sg/arch...rnhill-bonanza

Published July 10, 2012

CapitaLand, Ascott Reit plot Cairnhill bonanza

By michelle tan


[SINGAPORE] CapitaLand will "exchange" several properties with its own unit, Ascott Residence Trust (Ascott Reit) in the coming months via a series of acquisitions and divestments.

Ascott Reit's Somerset Grand Cairnhill Singapore property, located along Orchard Road, is set to be sold to parent CapitaLand for redevelopment at a price of $359 million. This translates to a total land cost of about $1,100 to $1,200 per square foot (psf) after factoring in the estimated premium of $160 million to $180 million payable for a fresh 99-year lease and for the change of use to an integrated development with gross floor area (GFA) intensification.

Once the site has been redeveloped into a 20-storey serviced residence (with a hotel licence) in 2017, CapitaLand plans to divest it back to Ascott Reit for $405 million. The finished development will also include a 30-storey high-end residential offering (200 to 250 units) which will be sold by CapitaLand.

Ascott Reit was previously granted an outline planning permission and provisional provision by the Urban Redevelopment Authority to redevelop Somerset Grand Cairnhill Singapore into an integrated development comprising 40 per cent hotel use and 60 per cent residential use. However, as the Reit is not allowed to undertake the redevelopment due to restrictions under the property funds appendix in the Code on Collective Investment Schemes, it decided to divest the property to CapitaLand, which owns 49 per cent of Ascott Reit.

Some analysts raised concerns during a briefing yesterday that the price for the Cairnhill property was attractive for CapitaLand, but not for Ascott Reit. They said that the asset could have perhaps fetched a higher price if it had been opened up to a public tender.

In response, chief executive officer of Ascott Residence Trust Management Limited Ronald Tay said that the price was based and supported by independent valuations conducted by independent valuers and is "in line with market comparables".

He also added that established developers that have a hospitality arm are unlikely to participate in the proposed transaction if it was open for tender, as they would rather develop the property for their own use, rather than acquire and develop it, only to be sold back to a competitor thereafter. "This leaves behind some smallish developers. And as we are buying back the property, one of the key considerations is the execution and ability to deliver the property on time and with good quality," noted Mr Tay.

Lim Ming Yan, chief operating officer at CapitaLand commented: "I think basically the consideration is that we don't really make money from the hotel (Cairnhill serviced residence) that is subsequently sold back to Ascott Reit, neither do we lose money on that. On balance we look at the whole deal as a fair deal for both parties."

Other properties that are set to switch sides include Ascott Raffles Place Singapore and Ascott Guangzhou, following CapitaLand's proposed divestment of the two properties to Ascott Reit for sales proceeds of $283.3 million - which will be subsequently reinvested into the Cairnhill development and other new investment opportunities in Asia and Europe.

However, questions were raised regarding why these two Ascott properties were disposed out of the lot.

In response, Chong Kee Hiong, chief executive officer of The Ascott Limited said: "These are assets that Ascott has operated for a few years and have reached a stability (point). The market is also picking up. So to us it is an opportunity, that when it reaches a stabilised yield, to divest it to Ascott Reit."

But it seems to be a win-win situation for all, as Ascott Reit is expected to see a 4.4 per cent improvement in its pro forma net asset value to $1.42 following the acquisitions of the two Ascott properties and the prospective Cairnhill serviced residence.

Meanwhile, Ascott will carry on operating the 146-unit Ascott Raffles Place Singapore through a master lease arrangement and the 208-unit Ascott Guangzhou through a pre-existing management agreement. Additionally, Ascott will also manage the new Cairnhill serviced residence (which is expected to yield 371 units based on the current Cairnhill Development plan) upon its completion via a master lease arrangement.

The transactions are expected to be completed sometime in the third quarter of this year, while works for the Cairnhill development is slated to commence in 2013.

Yesterday, CapitaLand and Ascott Reit counters closed at $2.89 (down 3 per cent or nine cents) and $1.15 (unchanged) respectively.