Perennial to take reins of Capitol project after $528m buyout

Mar 13, 2018

It will buy out co-owner; development better placed to operate after deal, say observers

Annabeth Leow


Perennial Real Estate Holdings is set to walk away as the sole owner of the Capitol Singapore project after a business dispute held up the development of the heritage site.

Mainboard-listed Perennial will buy out co-owner Pontiac Land Group affiliate Chesham Properties to the tune of roughly $528 million.

Industry watchers said the development - which includes a stalled hotel component - will be better placed to operate after the buyout.

The deal announced yesterday follows a January settlement agreement where either party had the option to purchase all of the other's shares in the property.

Perennial's price tag includes $129.6 million in cash for the shares, funded by internal resources and borrowings. Perennial will also discharge Chesham's shareholder loans of $368.6 million, excluding interest - and pay $3 million to Pontiac-linked Patina Hotels & Resorts.

The price was based on a property valuation of about $1.03 billion. "We believe the assets are fully valued at the agreed price," a spokesman for Chesham said, and stock watchers seemed to agree.

DBS analyst Derek Tan said: "It is a good deal in view of the high prices paid for land in recent commercial land transactions. Pontiac probably sees it as an exit from a very good investment."

CGS-CIMB analyst Lock Mun Yee estimated in a note that the Capitol's completed, non-residential gross floor area could be valued at $1,767 per sq ft. Both she and Mr Tan separately argued that this appears to be below replacement cost.

It compares favourably, they said, with what GuocoLand and Guoco Group paid for a Beach Road commercial site and what IOI Properties coughed up for the prime white site in Central Boulevard.

The analysts are also banking on the opening of the luxury hotel at Capitol. Although a mall and the Capitol Theatre opened in 2015, the 157-room hotel - which was to have been managed by Patina - has been shuttered amid the owners' dispute.

Mr Tan and Ms Lock agreed that the property's retail component appears to be underperforming.

Mr Tan suggested that attracting a new hotel operator could boost tenant sales and drive up rents: "Having the project under one holder will be more efficient and Perennial will have a free hand to drive operations and execute any potential repositioning."

Perennial and Chesham picked up the landmark Capitol site in 2010, along with a third party that later left the joint venture. The relationship soured as disagreements began cropping up by 2013.

Perennial went to court to seek the winding-up of the project's associated companies, but it lost the case, with its subsequent appeal dismissed last November.

Ms Lock held to an "add" rating on the counter yesterday and bumped up its target price by six cents to $1.18.

Perennial closed up by 0.5 cent to 86 cents after the news.