CDL mulls Singapore Reit for UK commercial properties
Kalpana Rashiwala
Singapore
CITY Developments Ltd (CDL) is exploring the possibility of floating a real estate investment trust (Reit) on the Singapore bourse holding UK commercial properties. This could happen as early as this year.
The group currently owns Aldgate House and 125 Old Broad Street in Central London.
"Most likely we'll try to buy a third commercial property in the UK to give the portfolio a bit more size and diversification before we launch an IPO," group chief investment officer Frank Khoo said on the sidelines of the group's fourth-quarter results briefing.
Asked about the potential size of the property portfolio for the Reit at flotation, Mr Khoo told BT: "I think for us we'd like to get to about £1 billion AUM (assets under management); so that would be about S$1.8 billion and then if you put in about 40 per cent leverage, you will get to a market cap of about S$1 billion.
"So we think about S$1 billion could be the right size."
The plan would be to list the Reit on the Singapore bourse; the units could be denominated in either the pound or Singapore dollar. "We need to work with the banks on that."
CDL acquired Aldgate House at £183 million and 125 Old Broad Street at £385 million both in 2018. Mr Khoo estimates the total value of these two assets at about £600 million today.
In response to questions at the analyst and media briefing, Mr Khoo indicated that currently the plan is for the potential Reit to hold just UK properties. "We think that the UK market is big enough; it has depth so we don't actually need to contaminate it with another country. And, also from a currency perspective, it is probably a lot easier just to have it in one currency."
CDL has also acquired several residential development/mixed-use sites in the UK in recent years.
CDL executive chairman Kwek Leng Beng said that there is some intention to sell the 22-acre former Stag Brewery site in Mortlake, South West London once all planning approvals are finalised given that this is "a very big project".
The proposed mixed-use scheme includes 663 residential units, flexible use floorspace for various commercial, community and leisure purposes, and a new secondary school. "The finalised scheme is expected to be determined by Q2 2020," the group said in its results statement.
Meanwhile, in China, CDL is renegotiating the terms for its proposed investment of 5.5 billion renminbi (S$1.1 billion) representing a 24 per cent effective equity stake in Sincere Property Group and an interest-bearing loan extended to Sincere.
CDL's group chief executive officer Sherman Kwek said the tougher business environment in China since the proposed deal was announced last May, and made worse by the Covid-19 outbreak, has created an opportunity for CDL to renegotiate the terms of the deal in CDL's favour.
Responding to an analyst's question, he said that CDL is "very unlikely" to walk away from the deal. He noted that Sincere is a big player in China and CDL needs diversification to offset the thinning profit margins in the Singapore residential development business due to high land cost. "I have always been a big China bull. I mean, it is the most populous nation in the world - 1.4 billion people; ignore it at your own peril.
"After they get through this virus episode, you cannot deny that housing demand is extremely strong in China."
CDL last year successfully privatised its London-listed hotel arm Millennium & Copthorne Hotels. This year its capital expenditure programme for refurbishment is expected to be around S$140 million.
In California, the construction cost of the Sunnyvale project, comprising of a 263-room hotel (planned for an M Social) and a 250-unit residential apartment block, is estimated at US$180 million . This project is expected to complete in the next two years. In Korea, the group continues to study alternative options for its development site in Yang Dong, Seoul adjacent to its Millennium Hilton Seoul and does not expect construction to commence in 2020.
