Tuesday, December 16, 2008

Central Lat Phrao lease extended

New 20-year contract for B21bn in total rent

The Central Group of Companies has formally extended its lease with the State Railway of Thailand for the Central Lat Phrao mall for another 20 years.

Central Retail Corp plans to invest up to one billion baht to renovate the Lat Phrao location to be on a par with its flagship Central Chidlom.

Under the contract signed on Tuesday, total payments by Central over the period will amount to 21 billion baht. Central's previous lease ends on Dec 18.

Suthichart Chirathivat, executive director of Central Group of Companies, said the group would invest 2.4 billion baht to renovate the Lat Phrao complex as required under the new lease.

Tos Chirathivat, the chief executive of Central Retail Corp, said the company would invest 800 million to one billion baht to renovate the Central Department Store Lat Phrao to be on a par with the group's flagship Central Chidlom store to better serve the increasingly sophisticated customers in the area.

During the 20-year lease period, Central Group will pay 21.298 billion baht in total rents to the SRT. The rate exceeds estimates made by two independent advisers to the SRT, Agency For Real Estate Affairs and Knight Frank Chartered Thailand, and was approved by a committee set up under Article 13 of the Public-Private Joint Venture Act B.E. 2535.

When the new lease expires in the next 20 years, the SRT will call a bid to find a new tenant as required by the act.

The committee decided to base its consideration on the highest long-term potential of the project and the best-case scenario or the best price on condition that the overall economic growth is smooth and not interrupted throughout the contract period, said Mr Suthichart.

In its proposal, Central Group proposed two options to rent the project for 20 years or 30 years. The company viewed that the 30-year lease term was more viable for both parties. However, the two independent advisers recommended the lease for only 20 years.

Mr Suthichart said that even with the current global economic recession, Central remained optimistic about the site's long-term viability.

He noted that Central started the Lat Phrao project three decades ago amid another recession.

"Thirty years ago, when we were first awarded the right to develop this project, the country also was in the midst of an economic recession and we suffered losses for almost 10 years. But we did survive and became successful."

Central Lat Phrao is today a Bangkok landmark and at the heart of a new business district in the north of the capital. The 47.22-rai site includes a shopping complex, conference centre, office building and the Sofitel Centara Grand Bangkok hotel.

"We believe that the current economic crisis is only temporary. The Thai economy has strong potential. Therefore, making an investment now is right not only for Central Group but also for any investor," said Mr Suthichart.

Prior to the signing of the new lease, Thawalrat Onsira, the chairman of the SRT board, suggested the SRT make a list of assets and increase the guarantee to 30-50 million baht, compared to 20 million baht in the existing lease. As well, those who sub-lease the land and/or building from Central Inter Development (CID) must have the same responsibility as the main lessee.

Central executives said the contracts already stipulated the three points raised by the SRT.

After being awarded the new contract, CID gave two Central Group subsidiaries - Central Pattana Plc and Central Plaza Hotel Plc (Centel) - the right to sub-lease the land and/or building at the project for 20 years from now.

CPN and Centel have already signed a memorandum of understanding with CID to preserve their sub-lease rights. The two companies paid CID 300 million baht and 95 million baht as guarantees for the shopping plaza and the hotel building, respectively.

Shares of Centel closed yesterday on the SET at 3.10 baht, down two satang, in trade worth 2.08 million baht. CPN closed at 12.40 baht, down 70 satang, in trade worth 60.7 million

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