CITY Developments Ltd (CDL) recently sold its stake in Chinatown Point, comprising the entire retail component (283 strata shop units) and four strata office units, for $250 million. The buyer is a consortium put together by Perennial Real Estate group – set up by Pua Seck Guan, the former CEO of CapitaMall Trust Management Ltd.

What made CDL, a seasoned developer, divest the asset it has held for two decades?

Located strategically at the intersection of New Bridge Road and Upper Cross Street, Chinatown Point is a mixed development comprising a mall (with six levels of retail space including part of Basement 1) and a 25-storey office tower. It stands on a 99-year leasehold site, which was sold by the Urban Redevelopment Authority in 1980 for $61 million to Ho Kok Cheong’s People’s Park Chinatown Development. Mr Ho had planned a hotel and mall development to be named Chinatown Centrepoint.

However, the project’s developer ran into financial difficulty and was ordered to be wound up in August 1986. The stalled project was then put up for tender the following year and that was when CDL entered the picture. It won the tender in September 1987 and later took a couple of partners. The project’s scheme was changed from retail-and-hotel to retail-and-office, along with a name change. Chinatown Point finally opened in 1990.

The location received a major boost when Chinatown MRT Station opened nearby, as part of the North East Line, in 2003. And shopper traffic in the area is set to grow further when the Chinatown Station becomes an interchange as part of the new Downtown Line.

Evolved market

But location alone is not enough in today’s retail market. The mall management business in Singapore has evolved to a new level in the past 10 years or so, especially since the listing of Singapore’s first real estate investment trust, CapitaMall Trust (CMT), in 2002.

It marked the dawn of a new breed of ‘professional mall managers’, with the mandate to extract as high a net property income as possible from the assets under their management.

One of their trademarks is the undertaking of creative asset enhancement works, such as the decanting of space from upper floors (where retail rents are lower) and the building of replacement shop space on lower levels, where rents are higher.

Mechanical and engineering equipment and sometimes even carpark space in basements are moved elsewhere to create new retail space.

Large-space tenants like department stores occupying prime spots are eschewed as these mall managers prefer to carve the area into smaller units which can generate higher per square foot rentals.

Tenants’ turnovers are tracked closely as they have to pay gross turnover rents, in addition to a fixed base monthly rent. Underperforming tenants are shown the door and higher-performing replacements are found in the merciless pursuit to generate maximum returns for the Reit’s unitholders, who include many mom-and-pop investors and retirees in additional to institutional investors.

This breed of aggressive professional mall managers has grown, as CMT’s listing has spawned other trusts holding shopping centres – such as Suntec Reit, Frasers Centrepoint Trust and the Asia Retail Mall funds.

In such a marketplace, CDL may have found it tougher to make Chinatown Point mall shine against the competition – unless it’s prepared to set up its own shopping centre Reit/trust and allied professional mall management business.

Sensible move

It makes good business sense for CDL to have sold Chinatown Point mall and redeploy sales proceeds to other aspects of the real estate business where it has a comparative advantage – such as, its ability to buy residential sites here and launch them within a short time, achieving relatively quick turnaround on its investment.

Chinatown Point isn’t the first mall that CDL has disposed of; back in 2003, it sold its stake in Lot One in Choa Chu Kang.

The group has a few other shopping centres in Singapore in its portfolio – including Central Mall at Havelock/Magazine roads; Palais Renaissance, next to the red-light haunt of Orchard Towers; and City Square Mall along Kitchener Road.

It should not be too surprising if some of these are divested in future.

Source: Business Times, 19 Jul 2010

A UNIT of Frasers Centrepoint has bought the prime StarHub Centre in Cuppage Road for a residential and commercial project.

Owners CapitaCommercial Trust (CCT) confirmed months of speculation yesterday when it announced that the 10-storey building had been awarded to FCL Crystal for $380 million through a tender process.

The price is 42.5 per cent – or $113.3 million – more than its valuation of $266.7 million at the end of June by CB Richard Ellis, the statement said.

CCT said the Urban Redevelopment Authority ruled in January that the property near Orchard Road could be designated for residential use, but 20 to 40 per cent of the gross floor area must be retained for commercial use.

Approval has also been given for a new 99-year lease for the project, subject to certain conditions.

CCT said the property had reached its ‘optimal stage of life cycle as an office building’. With its focus mainly in the office sector, it said the best option to unlock maximum value was to sell the building to another party for potential redevelopment.

‘The manager is of the view that CCT should not participate, whether solely or on a joint venture basis, in the redevelopment of the property into a predominantly residential project and expose CCT to undue residential development and market risks,’ the real estate investment trust added.

Frasers Centrepoint said the deal would lift its land bank to 2.2 million square feet.

‘With its strategic location, the (site) has great potential for a high-end mixed residential and retail development,’ said Frasers Centrepoint chief executive Lim Ee Seng.

Source: Straits Times, 17 Jul 2010

HDB to provide $6m for shops to spruce up, promote themselves

ABOUT 3,400 Housing Board shops in 35 neighbourhoods or town centres will get a chance to spruce up or promote themselves – and perhaps stave off competition from swanky new heartland malls.

The shops will be included in the third phase of the Housing Board’s Revitalisation of Shops scheme.

The 35 places included in the latest phase range from Chai Chee Neighbourhood Centre to Toa Payoh Lorong 7 Neighbourhood Centre.

Under this phase, the HDB will provide about $6 million that can be used to upgrade common areas where the shops are located or to carry out promotional activities, or both.

The co-funding scheme was started in 2007. In the first two phases, the HDB spent $17 million, benefiting more than 3,000 shops in 34 areas.

There are 14,600 HDB shops islandwide.

Stores that are in areas not yet included in the scheme will also get a boost: The HDB will give those that want to upgrade a half-month rent-free period, subject to some conditions. This means the stores can use the money they save on rent to add extra fittings and other equipment to make themselves more attractive.

The latest moves were announced by Senior Minister of State for National Development Grace Fu at an HDB retail seminar held at the HDB Hub auditorium in Toa Payoh yesterday.

Speaking in Mandarin to 400 representatives from HDB shops, she noted that a recent survey had shown more positive business sentiment and greater awareness of government assistance schemes.

But, she said, shops have a role to play too, and should keep up with customer demands and improve business management to succeed.

‘You should continually improve your knowledge of retail practices and open your minds to new ways to create value and boost productivity.’

HDB shops have been in the spotlight recently, with many complaining of falling business in the face of competition from new heartland malls, as well as an ‘invasion’ of big retail chains into neighbourhoods.

Yesterday, Mr Yeo Hiang Meng, the president of the Federation of Merchants’ Associations Singapore, which represents about 30 per cent of HDB shops islandwide through member associations, said it has received feedback that shops on the revitalisation scheme have seen business improve by 10 per cent to 30 per cent.

Mr Yeo, who runs a goldsmith and jewellery shop in Toa Payoh Central, said heartland shops had a distinctive character and could even be a way of attracting tourists. He said: ‘Shopping in the heartland is a unique feature of Singapore.’

Yesterday, the HDB also launched a mobile version of its where2shop@HDB website – which was started last year for people to get quick information about HDB shops and their products – for easier navigation on mobile phones. It can be accessed at www.mobile.hdb.gov.sg

Source: Straits Times, 17 Jul 2010

THE Housing & Development Board yesterday unveiled more initiatives to help HDB shops, including the selection of 35 sites for batch three of its Revitalisation of Shops (ROS) scheme.

ROS, which kicked off in November 2007 and has since covered more than 3,000 shops, provides part-funding for shopkeepers to upgrade and carry out promotions. Participating shopkeepers have reported 10-20 per cent increases in sales.

The budget for the scheme this year is an estimated $6 million. Besides helping through ROS, HDB will grant half-month rent-free periods to tenants who renovate their premises. The sum of $2 million a year has been set aside for this initiative, which is expected to benefit more than 6,000 HDB shops.

Besides announcing the moves yesterday at a retail seminar, HDB also used the occasion to launch a Where2shop@HDB Mobile website. Unveiled last year to showcase HDB shops in 148 locations, Where2Shop can now be accessed by consumers through mobile devices. Extra features, such as tenant profiles and details of promotions, have been added to the site.

Also at the seminar, Grace Fu, Senior Minister of State for National Development and Education, shared findings from a 2009 business expectations survey – 62 per cent of shopkeepers surveyed took the initiative to improve their businesses, up from 52 per cent in 2008, she said.

About 2,800 HDB shopkeepers islandwide took part in the survey, which was carried out in September and October last year.

Source: Business Times, 17 Jul 2010

CapitaCommercial Trust will book a net gain of about $109.1m from the divestment

FRASERS Centrepoint Ltd has inked a deal to buy StarHub Centre at Cuppage Road for $380 million from CapitaCommercial Trust (CCT).

CCT will book a net gain of about $109.1 million from the divestment. The transaction price is 42.5 per cent or $113.3 million above the asset’s latest valuation of $266.7 million at June 30, 2010.

CB Richard Ellis brokered the sale of StarHub Centre.

Frasers Centrepoint CEO Lim Ee Seng said that StarHub Centre has ‘great redevelopment potential for a high-end mixed residential and retail development’. The asset will continue to be leased out as an office/retail property until such time as redevelopment options and designs are firmed up by the company, and planning approvals are obtained, Mr Lim added.

The group’s Centrepoint Shopping Centre already has a second-storey link bridge to StarHub Centre and a new project on the StarHub site will better integrate the two properties, market watchers say.

The sale by CCT will provide it with net proceeds of about $375.8 million – after taking into account divestment fee and other related costs – which will provide the trust with greater financial flexibility to pursue other attractive acquisition opportunities and/or to repay debt, the trust’s manager, CapitaCommercial Trust Management Ltd (CCTML) said.

It also revealed that on July 13 it received in-principle approval from Singapore Land Authority (SLA) for a top-up of the StarHub Centre site’s lease to 99 years. The site currently has a balance lease term of about 85 years. However, the lease upgrading premium payable to the state will be determined upon formal application.

In January, Urban Redevelopment Authority granted outline planning permission (OPP) for a change of the site’s use, from pure commercial use currently – to a residential (60-80 per cent of gross floor area or GFA) and commercial use (20-40 per cent of GFA). However, the current gross plot ratio of 4.9+ remains unchanged.

‘After evaluating various asset options and Singapore’s property market conditions, the manager believes that the property has reached its optimal stage of life cycle as an office building. However, as CCT’s focus is mainly in the office sector, the manager is of the view that CCT should not participate, whether solely or on a joint-venture basis, in the redevelopment of the property into a predominantly residential project and expose CCT to undue residential development and market risks.

‘Hence, the manager considers that the best option to unlock the maximum value of the asset for CCT is to divest it to another party for potential redevelopment,’ CCT’s manager said.

It also stressed that the sale to Frasers Centrepoint is not subject to any additional planning or redevelopment approval of any kind being obtained, following the OPP. It is also not a condition of the sale that CCT fulfils the conditions of the in-principle lease upgrade approval from SLA.

CCT also explained the process of picking the buyer.

‘After an exercise to gather formal expressions of interest from a long list of prospective bidders to purchase the property, the sale of the property was conducted by way of a private tender with the parties which had expressed an interest to purchase the property. The purchaser was one of the bidders which offered to purchase the property and whose offer and terms for the purchase (a) did not introduce any new provisions which would give rise to the right of the purchaser to rescind the purchase, thus offering more certainty in the completion of the sale, and (b) met most closely with the requirements of the manager and the trustee,’ CCTML said.

Frasers Centrepoint said the acquisition of StarHub Centre will boost its landbank to 2.2 million square feet.

Source: Business Times, 17 Jul 2010

The Housing and Development Board is extending its Revitalisation of Shops (ROS) Scheme – introduced in 2007 – to even more heartland retailers.

Announcing the extension, Senior Minister of State for National Development, Grace Fu, said the extension of the scheme will involve 35 sites with an estimated budget of S$6 million.

Thirty-four sites with more than 3,000 shops have already benefited from S$17 million of funding under the two previous batches.

Speaking at a HDB retail seminar on Friday, Ms Fu said all the sites are progressing well in their revitalisation efforts.

Three sites – Teck Whye Shopping Centre, Serangoon North Neighbourhood Centre and Bedok Town Centre – have completed their upgrading works, and more than 100 events have been organised by the Merchant Associations.

She said shopkeepers reported a 10 to 20 per cent boost in sales, and greater vibrancy after the upgraded works and the promotional events.

Ms Fu said that beyond the ROS scheme, HDB will also help other shop tenants enhance their shops, by granting a half-month rent-free period for them to carry out renovation works within their shops during tenancy renewals and where rejuvenation plans, such as Town Council improvement works, have been announced.

She said the government will set aside S$2 million each year for this, benefiting more than 6,000 shop tenants.

HDB has also launched Where2Shop@HDB Mobile. Consumers can now access information on Where2Shop on their mobile devices.

Ms Fu said these new measures announced on Friday will help the HDB retailers to position themselves better for their business.

Source: Channel News Asia, 16 Jul 2010

CapitaCommercial Trust (CCT) is selling the StarHub Centre to Frasers Centrepoint for S$380 million in cash.

StarHub Centre is a 10-storey non-Grade A office building with retail space next to FCL’s Centrepoint mall.

It currently has a committed occupancy of 68.2 per cent and some 280,000 square feet of lettable space.

The current lease for the site expires in January 2095.

CCT disclosed that it has received in-principle approval from the Singapore Land Authority to top up the lease to 99 years, subject to the payment of a differential premium.

Earlier this year, the Urban Redevelopment Authority gave its approval for the building to be converted into a residential block.

But 20 per cent to 40 per cent of the gross floor area must be retained for commercial use.

CCT expects to make approximately S$375.8 million from the deal after transaction costs.

StarHub Centre was last valued at S$266.7 million by CB Richard Ellis in June this year.

Frasers Centrepoint CEO Lim Ee Seng said that with its strategic location in the heart of Orchard Road, the StarHub Centre has great redevelopment potential for a high-end mixed residential and retail development.

Source: Channel News Asia, 16 Jul 2010

Singapore’s Orchard Road will be adding another new face to its shopping belt.

A retail, hotel and office development will soon come up at the sites of the former Specialists’ Centre and Hotel Phoenix, as well as Orchard Emerald mall.

The project, costing some S$700 million, is expected to be completed in the second half of 2013.

A groundbreaking ceremony on Friday marked the start of the redevelopment of three neighbouring sites on Orchard Road.

Where the former Specialists’ Centre and Hotel Phoenix used to be, a new 4-star hotel with about 500 rooms will come up, along with nearly 21,000 square metres of retail space.

United Engineers (UEL) is the developer of the site, which is wholly owned by OCBC.

Across the road, the former Orchard Emerald site will contain around 3,500 square metres of office space and 2,700 square metres of retail space. The site is wholly-owned and developed by Great Eastern Holdings.

The two sites will be connected by a glass overhead bridge across Orchard Road, which developer UEL said is the first in Singapore.

UEL is not concerned that its new development is a relatively latecomer in the saturated Orchard Road shopping strip.

Jackson Yap, CEO, United Engineers Limited, said: “We are the last of the jigsaw that would make this into a significant shopping area. The key to this is connectivity.

“You can go seamlessly in bad weather and so on, into the three shopping malls. You can cross the street, and also shop on the other side of the road.”

The new development will also be connected by passageways to its neighbours 313@Somerset and Orchard Central. Its Basement 1 will also be connected to the Somerset MRT station.

UEL said it is confident it can generate decent foot traffic.

Mr Yap said: “Phoenix Hotel has always been well-occupied, partly because of its location and also its proximity to many shopping malls. So we expect the hotel to be full and the hotel is full because we have good shopping tenants!”

A key tenant will be a new Singapore Visitors Centre, but the developers are keeping mum on the retail mix for now.

Observers say the new development may also feature some high-end brands, given Orchard Road’s reputation as a premier shopping belt.

Source: Channel News Asia, 16 Jul 2010

PROPERTY group Perennial has inked a $250 million deal to buy a large portion of Chinatown Point from City Developments (CDL).

Its purchase, which is likely to be completed by mid-October this year, comprises 283 retail units, plus four office suites, at the 99-year leasehold site located at the junction of New Bridge Road and Upper Cross Street. Both the retail and office units are managed by former CapitaLand veteran Pua Seck Guan, the founder and chief executive officer (CEO) of Perennial Real Estate.

CDL said in a statement that the sale was in line with its strategy to continually review its existing portfolio. It added that because it did not own all of the office units in Chinatown Point – the mixed development comprises 283 retail units and a 25-storey office block consisting of more than 100 office units – the group felt that it was an opportune time to unlock value from its holdings.

Perennial plans to revamp Chinatown Point retail mall with offerings such as traditional Chinese speciality food and foodstuffs, goldsmiths, jewellers, traditional and modern Chinese or Asian accessory stores, and travel agencies.

Perennial CEO, Mr Pua, formerly CEO of Capitaland Retail, said: ‘By enhancing the ambience of the mall, we hope to provide shoppers with an improved shopping experience where various treasured trades closely associated with Chinatown are conveniently housed in a well-integrated retail mall environment.’

NTUC FairPrice is likely to be a supermarket anchor tenant at the repositioned Chinatown Point retail mall.

Source: Straits Times, 14 Jul 2010

Buyer is consortium of investors that includes German fund manager SEB

CITY Developments Ltd (CDL) has sold the retail mall of Chinatown Point as well as four office units for $250 million to a consortium of investors, which includes German fund manager SEB.

The consortium was put together by Pua Seck Guan’s Perennial Real Estate group.

The transaction price reflects $1,403 per square foot based on the total strata area of 178,187 sq ft. The asset comprises 283 strata-titled retail units and four office units.

Mr Pua, who is Perennial’s CEO, said the new owner plans to reposition the mall and enhance its ambience. NTUC FairPrice is expected to be a supermarket anchor tenant at the revamped Chinatown Point mall. The envisaged trade mix of the repositioned mall would comprise a wide variety of offerings such as traditional Chinese specialty food and foodstuffs, jewellery, traditional and modern Chinese or Asian accessories stores and travel agencies.

The property is strategically located at the junction of New Bridge Road and Upper Cross Street and is very near the Chinatown MRT Station serving the North-East Line. Current tenants at the mall include Swensen’s and McDonald’s.

‘In time, Chinatown Point mall is expected to benefit from the increased footfall to the area once the upcoming Downtown Line, which is expected to connect to the adjacent Chinatown MRT Station, is operational.

‘We expect the revamped mall to appeal not only to the locals, but also tourists who would like to experience the charms and flavours of Chinatown in a contemporary setting,’ Mr Pua said.

Seller CDL said in a statutory filing with Singapore Exchange that as it does not own all of the strata-titled units in Chinatown Point, it is of the view that it is an opportune time to unlock value from its holding in the sale units.

Chinatown Point’s mall spans six levels – including part of Basement 1. It is part of a mixed development that also includes a 25-storey strata titled office block. The development is built on a site with a 99-year leasehold tenure starting November 1980.

Last year, a private trust set up by Perennial bought Katong Mall for $247.6 million and last week plans were announced for a $60 million redevelopment of the asset.

Source: Business Times, 14 Jul 2010