PROPERTY giant CapitaLand is buying serviced residence Somerset Grand Cairnhill Singapore from its own unit for $359 million to redevelop the property.
The site, near Orchard Road, will be redeveloped into CapitaLand's first-ever integrated development containing a serviced residence and condominium.
CapitaLand announced yesterday it is buying the property from its unit, Ascott Residence Trust.
The redevelopment project is expected to obtain its Temporary Occupational Permit in 2016.
The 30-storey condo development will boast about 200 to 250 residential units and they will be sold to the public.
By around 2017, the 20-storey serviced residence tower with 371 units will be sold back to Ascott Residence Trust for $405 million. It will have a hotel licence so it can take in both short-term and long-term guests.
The property is in Cairnhill Road, just off Orchard Road. The Al-Falah Mosque on the site will be retained and will continue operating during construction work.
'As an integrated development with a serviced residence component, there will certainly be opportunities to explore and create synergies between the two to bring value to our homebuyers in the form of new amenities and services,' said Mr Wong Heang Fine, chief executive of CapitaLand Residential which will undertake the redevelopment with The Ascott.
Both these companies are wholly-owned units of CapitaLand, which also holds 49 per cent of Ascott Residence Trust, a listed real estate investment trust.
CapitaLand and Ascott Residence Trust announced the deal before markets opened and then held a briefing on the project.
Based on approvals from the Urban Redevelopment Authority, the project has an allowable gross floor area of 466,429 sq ft, comprising 40 per cent for the serviced apartments and 60 per cent for residential use.
CapitaLand will need to pay $160 million to $180 million for a fresh 99-year lease and for intensifying the land use. Including the $359 million paid to Ascott Residence Trust, total land cost will be $1,100 to $1,200 per sq ft (psf).
The redevelopment cost, including both the serviced residence tower and the condominium, will be from $900 million to $1 billion, said CapitaLand's chief operating officer Lim Ming Yan.
Savills Singapore research head Alan Cheong told The Straits Times that condominium developments in the Cairnhill Road area can, on average, sell for between $2,500 psf and $3,500 psf.
'Cairnhill is undergoing a transformation. It's upmarket, and it's going even more upmarket, and developers are aspiring to hit the Paterson Road-type pricing, where one unit went for $6,800 psf last year.'
But Mr Cheong cited a 'geographical risk', with some homebuyers turning their attention away from the Orchard Road area towards the Tanjong Pagar area.
For its part, Ascott Residence Trust, which operates serviced residences in Asia, Australia and Europe, will spend $220 million of the sales proceeds to buy Ascott Raffles Place and another $63.3 million to buy Ascott Guangzhou from CapitaLand.
This will ensure that its income and payouts to unitholders will not fall after selling off the Somerset Grand Cairnhill Singapore.
If the deal had been completed, last year's distribution per unit would have been 8.55 cents, up from 8.53 cents. Including the redeveloped Cairnhill serviced residences, it would have been 8.88 cents.
Closer to taking over the redeveloped serviced residences in 2017, Ascott Residence Trust will raise some more funds, through undertaking more debt and issuing perpetual securities.
The deals are subject to the approval of Ascott Residence Trust's unitholders.
Yesterday, CapitaLand lost nine cents or 3 per cent to $2.89 while Ascott Residence Trust was unchanged at $1.15.