News Analysis: Rejuvenate Singapore CBD

  • City Developments acquired Central Square for S$315m and unveils its redevelopment with potential GFA uplift of 67%, riding on the government’s incentive scheme
  • While the acquisition price may be high, we believe the redevelopment potential is lucrative for City Dev with a potential GDV of S$2b
  • The potential addition of residential component will be a potential upside that has yet to be priced in. 
  • Maintain BUY; TP of S$10.50

City Developments (City Dev) acquired Central Square for a purchase consideration of S$315m and unveils its redevelopment plan on both Central Mall and Central Square with potential GFA uplift of 67%. Riding on the government’s incentive scheme to rejuvenate the CBD,  City Dev embarks on its second project after the recently unveiled redevelopment of Fuji Xerox Towers.

Acquire Central Square for a total of S$333.2m (including incentive; implies c.S$1.7k psf) at c. 2.5% to 3% exit yield on a normalised year.  City Developments has entered into a put and call option agreement to acquire Central Square for S$313.2m from Far East Hospitality Real Estate Investment Trust and the reversionary leasehold interest for S$1.8m. The transaction includes an incentive payment of up to S$18m, subject to certain conditions being met by 31 Dec 2023, including getting planning approval for residential use. This adds up to total of S$333.2m (implies c.S$1.7kpsf of GFA) of potential consideration. We estimate that the exit yield (on a normalised basis) could be c.2.5% to 3%. Our ballpark estimate of purchase price including deferential premium and development charges is c. S$1.6k psf on its enlarged footprint.  The transaction is expected to complete by 1Q2022.

Obtained Outline Permission for potential GFA uplift of c.70% and working with authorities to add a residential component, a potential upside. While the acquisition price for Central Square appears to be quite high, it offers City Developments the opportunity to embark on a redevelopment that could offer a potential GFA uplift of 67%  on the enlarged portfolio and 78% on Central Square. City Development together with FEHT has obtained Outline Permission for the potential GFA uplift to 736k sqft on the enlarged site from current GFA of 442k sqft to redevelop into a mixed-use development for commercial, hospitality and serviced apartment. The construction is expected to be completed by phases from 2027. City Dev continues to work closely with the authorities to further enhance the development plan to potentially add in a residential component. 

Our Views

The redevelopment could generate a potential GDV of S$2b on S$1.2b of total development cost. We believe the redevelopment plan by integrating both sites is an interesting opportunity for City Development. Our ballpark estimate on total GDV could potentially be c.S$2b on total development cost of S$1.2b. If City Dev is successful in obtaining approvals to add residential component, we believe the potential upside could be even greater. 

City Dev has a total of 1.4m sqft of redevelopment GFA of integrated development in the city center of Singapore (including Fuji Xerox Tower). Together with the redevelopment of Fuji Xerox Towers, City Dev would have a total of 1.4m sqft of upcoming GFA potential of mixed use integrated development. We believe City Dev could be  one of the largest developer that is utilising the government incentive scheme for redevelopment in a big way. 

Maintain BUY; TP of S$10.50. 

DBS Estimates on potential GDV S$’mS$ psf
Existing GFA (sqft)441,650 
Potential GFA (sqft)735,500 
Land Cost (S$’m)             858 1,166
Construction Cost (S$’m)             316 430
Total Development Cost (S$’m)          1,174 1,596
Potential GDV (S$’m)          1,914 2,603

Source: DBS estimates