CDL looks to more fund management deals this year

Singapore

FOLLOWING the S$1.5 billion monetisation of the cash flow from its Quayside Collection assets on Sentosa Cove last December, City Developments Ltd (CDL) is "actively exploring the possibility" of one or more deals this year to further develop its unlisted funds management strategy. The deals, if any, will encompass existing CDL assets and be contingent on favourable conditions.

The property and hotels group said this in its first-quarter results statement. CDL posted a 2.8 per cent year-on-year increase in net earnings to S$123.03 million for the quarter ended March 31, 2015. The group set up a novel "profit participation securities" (PPS) structure to monetise the Quayside Collection assets comprising hotel, retail and residential assets - in partnership with Blackstone Tactical Opportunities Fund and CIMB.

In its latest results statement, CDL said: "The group will also seek to raise the traditional price earnings ratios...via a series of discretionary funds, building out CDL's funds management capability."

Market observers tipped the South Beach project as a possible target of CDL's unlisted fund management efforts.

An industy watcher argued that a PPS-like structure or some other fund management vehicle could potentially be set up to monetise South Beach even before it starts to generate sufficient cash flow, as the vehicle could initially take a higher gearing and borrow to make coupon payments to investors. "The important thing is that the project has to receive TOP (Temporary Occupation Permit) first, under government land sale rules, before any form of monetisation can be undertaken for the asset.

"One issue, however, is that CDL has a partner in the project, Malaysia's IOI Group, which may have a right of first refusal on CDL's stake in the project."

In its results statement, CDL said that the project's 34-storey office component, South Beach Tower, received Temporary Occupation Permit in February 2015 and to date, leases have been secured for 88 per cent of the 510,000 sq ft office space. South Beach Consortium (SBC), the CDL-IOI joint venture behind the mixed development project, has also leased out the conservation block fronting South Beach Tower.

The 11,000 sq ft retail space will house a bistro (which takes inspiration from New York's famed French restaurant Balthazar) in the day, and will be transformed into an exclusive party venue at night. This retail space will open in Q3 2015.

SBC has had to push back the soft opening for the hotel component, the 654-room The South Beach, originally slated for last month, to Q4 this year - "due to labour shortages and the mega-scale of this project". CDL was silent on the project's 190-unit residential component.

CDL's earnings per share increased to 13.5 cents for Q1 FY2015 from 13.2 cents for Q1 FY2014. Net asset value per share rose to S$9.43 as at end-March 2015 from S$9.25 as at end-December 2014.

The counter closed nine cents higher at S$10.19 on Wednesday. CDL announced its results after the stock market had closed. The group's net gearing ratio as at end-March 2015, without factoring any fair-value surpluses on investment properties, remained relatively low at 27 per cent. Its interest cover for Q1 2015 was at 9.3 times.

For Q1 FY2015, CDL's revenue rose 11 per cent to S$814.94 million. The group attributed the revenue improvement chiefly to contributions from property development and hotel operations. Profit before income tax but inclusive of share of after-tax contribution of associates and joint ventures, from property development edged up to S$97.76 million in Q1 FY2015 from S$95.19 million in Q1 FY2014. Profit from hotel operations rose to S$33.74 million from S$30.57 million. Profit from rental properties dipped to S$36.92 million from S$37.48 million.

Profits were booked in Q1 FY2015 from H2O Residences, Jewel@Buangkok and UP@Robertson Quay. Profits were also booked from joint-venture projects namely, Haus@Serangoon Garden, The Palette, D'Nest, Echelon, The Inflora, Hedges Park, Bartley Residences and Bartley Ridge. Coco Palms contributed its maiden profits during the quarter.

Profits were also booked for the first time from the fully-sold joint-venture executive condo (EC) project, The Rainforest. The project received TOP in March. Based on prevailing accounting standards, profit from units sold in an EC project can be booked only upon the project receiving TOP.

The group is planning to launch two Singapore residential projects in the second half of this year - The Brownstone, a 638-unit EC project along Canberra Drive in Sembawang, and the 174-unit freehold Gramercy Park in Grange Road.

Giving an update on its China projects, CDL said that the sales launch of the 126-unit luxury project Eling Residences in Chongqing will take place only in Q4 2015. This is to allow for a longer period for landscaping works, which have to be done up to a standard to satisfy Chongqing buyers. "The group remains confident in China's real estate market and is well positioned with its four projects to capitalise on the gradual recovery," CDL said.

Its London-listed hotel arm, Millennium & Copthorne Hotels, has five refurbishment projects underway at a total cost of about £22 million (S$45.8 million). These are in London; Anchorage, Los Angeles and Buffalo in the US; and Queenstown, New Zealand. "These refurbishment works are phased to minimise trading disruptions."

CDL emphasised that even as the group expands overseas and works actively to develop new platforms, its investment in Singapore will remain the mainstay of its business.