CITY Developments Limited (CDL) is eyeing strategic investments in real-estate companies to take advantage of the current price discount in equity markets, under its plan to deploy S$5 billion in overseas expansion over five years.
Already, over S$2 billion of that budget has been deployed - mainly in direct-asset acquisitions - in the past two years, still leaving the group with ample headroom until 2018.
Group chief executive Grant Kelley said that this is part of the "5-5-5" strategy stitched together since he joined the group in 2014; "5-5-5" is code for the deployment of S$5 billion in funds management and S$5 billion in overseas investments over a five-year period.
"Listed securities of real-estate operators are oftentimes trading beneath net-asset value, and that provides fertile ground for us to contemplate acquisitions," he told The Business Times this week.
"We've got about S$3.3 billion cash on the balance sheet in Q1 - roughly about S$1.8 billion of that is unrestricted, which is a tremendous war chest for acquisitions."
While there are no specific targets at this point, the group wants to place its bets in mature markets, where strong governance ensures better-quality companies with clean balance sheets. But he stressed that the group will be "patient for the right opportunities", given the group's discipline of not stretching on valuations and the fact that the process for stake acquisitions tends to be more long-drawn and complex than direct-asset acquisitions.
CDL has since 2014 identified Australia, China, Japan, UK and the US as the five key overseas markets to expand its footprint. But Mr Kelley said the group is not "over-prescriptive" on the location or deal size; he added that openings are also now emerging in markets such as Germany.
Acquisition candidates will still be in the asset classes where the group is most represented today - namely residential, commercial and potentially hotels, notwithstanding current headwinds in the sector.
Of particular interest are residential sites, offices and hotels outside Central London, as well as luxury residential projects and hotels in Japan.
An old hand at deal-making, Mr Kelley has more than 25 years of experience spanning across management consulting, private equity and real estate investments. He was co-head of Asia-Pacific for Apollo Global Management, and was chief executive of Colony Capital Asia from 2004 to 2008, where he led one of Asia's biggest buyouts when Colony acquired Raffles Holdings' entire hotel portfolio, including the Raffles Hotel, for about S$1.72 billion.
In his first extensive media interview since his appointment at CDL, the cerebral CEO recalled on Wednesday he had three major objectives when he came on board - two of which were to extend overseas expansion and establish a funds management platform for the group.
"And in each case, we have made fairly solid strides," he said. "In large ways or small, certainly in the first two years, we've met the objectives set out for us."
The group anticipates that its overseas development projects in the UK and China will start contributing to profit from the second half of 2016, as they are booked upon completion basis, which along with development profits in Singapore, is expected to translate to a stronger second half this year.
While CDL had earlier expressed its intention to launch its third profit participation securities (PPS) this year, he noted that asset prices have now become more volatile, making it a tougher market to raise money for assets.
PPS is a fixed-term instrument designed to provide both yield and capital gain. It pays out a fixed coupon per annum for a period of five years, from income produced by the underlying properties. Through the first two PPS vehicles in 2014 and 2015, CDL has unlocked S$2.6 billion of assets under management (AUM) - the half-way mark of the AUM target by 2018 - by monetising its Sentosa Cove assets known as The Quayside Collection under PPS 1 and three office assets under PPS 2. *
CDL has since received many enquiries on the PPS, but recognises that asset prices are trending down. Assets in town that have gone through multiple biddings are now estimated to be priced at 10 per cent lower than last year, he observed.
"We have a range of assets we can look at, but there are headwinds in each of these sectors, so I'm not convinced it's the right time," he said.
On that note, any PPS to be undertaken this year may be on a smaller scale, he said. "The key performance matrix for us this year is probably going to shift more to overseas acquisitions."
The third mandate handed down to Mr Kelley by group chairman Kwek Leng Beng two years ago was to streamline the organisation, carry out succession planning and mentor the younger generation of leaders; this process has become more apparent lately, with recent new appointments among the top brass.
Last month, Mr Kwek's son Sherman Kwek, 40, was promoted to deputy CEO; the nephew Kwek Eik Sheng, 34, has been appointed head of asset management, on top of his current role as CDL's chief strategy officer.
CDL has also strengthened its external professionals bench with the appointment of chief marketing officer Mark Yip, 52, as CEO of CDL China to replace Sherman Kwek, and Yiong Yim Ming, 42, as new chief financial officer.
Ms Yiong, the former senior vice-president for group accounts (subsidiaries and joint ventures), has been one of the key drivers behind the PPS programme, Mr Kelley said.
Galen Lee, 43, former managing director and head of South-east Asia real estate investment banking at UBS, joined CDL as head of capital markets in January. Belinda Lee, 42, has become head of investor relations in addition to her current role of corporate communications head.
Mr Kelley pointed out that those who were promoted have stepped up their performance. "The appointments that we have made have helped to refresh the leadership ranks," he said.
"One of the things that has always made the market sit up and take notice of CDL has been the dependability of the Kwek family leadership. I think it has been blended very well over the years with professional management, and I think that is something that will continue."