SINGAPORE - City Developments Limited (CDL) on Thursday said it completed its acquisition of the landmark St Katharine Docks development in London for £ 395 million (S$636 million).

 

The deal increased the group&rsquo s total commercial assets in Britain to around £ 1 billion, while also enhancing the group&rsquo s recurring income stream, said CDL group chief executive Sherman Kwek.

 

St Katharine Docks, which opened in 1828, is a 9.3ha mixed-used estate that fronts the River Thames and is adjacent to the Tower Bridge and Tower of London.

 

It attracts more than 5.9 million visitors annually, CDL added.

 

The acquisition price translates to £ 751 per sq ft on the estate&rsquo s existing net lettable area.

 

This comprises more than 500,000 sq ft of Grade A office, food and beverage, retail and residential space spanning four main buildings and supporting ancillary spaces.

 

It includes a marina with berths for up to 185 yachts.

 

Its office component has an occupancy rate of 90 per cent with a &ldquo well-diversified tenant base&rdquo across the consulting, shipping, education and co-working space sectors. These account for 92 per cent of the estate&rsquo s income.

 

&ldquo Since 2011, the estate underwent a £ 69.5 million repositioning and refurbishment programme, which included enhancements to the buildings, the marina and the overall estate,&rdquo CDL said.

 

It noted that long-term income has been secured with an overall weighted average unexpired lease term of 8.2 years to lease breaks, and 9.4 years to lease expiries.

 

The group identified &ldquo strong potential for positive rental reversion&rdquo and asset management opportunities to add value.

 

&ldquo CDL remains a long-term investor in the UK and has confidence in the fundamentals and resilience of the UK economy,&rdquo Mr Kwek said.

 

The group funded the acquisition through its internal cash resources and credit facilities. It said it bought the development from funds advised by asset manager Blackstone.

 

In January, the group confirmed that it was in discussions for the proposed acquisition in response to media reports.

 

CoStar reported that CDL was in talks with Blackstone to acquire St Katharine Docks for around £ 400 million.

 

Foreign investors who may want a pie of Singapore&rsquo s increasingly costly residential property should look no further than City Developments (CDL) and UOL Group.

 

Both are traditional developers with a strong presence in residential development, supplemented by cash flows from mainly Singapore-based commercial property and hotels.

 

CDL&rsquo s property development sector and Singapore account for 42% and 50% of its assets respectively. In FY2022, property development remained CDL&rsquo s biggest revenue contributor, accounting for 42% or $1.38 billion of the year&rsquo s revenue. Three key Singapore projects &mdash Amber Park, Haus on Handy and Irwell Hill Residences &mdash collectively made up 74% of property development revenue.

 

According to JP Morgan, CDL reported an adjusted ebitda for property development in 2HFY2022 ended December 2022 rose 11% y-o-y, excluding the impact of a $62 million allowance for foreseeable losses in a UK residential project.

 

JP Morgan says: &ldquo Looking ahead, CDL should benefit from the upcoming launch of Tembusu Grand (638 units) and Newport Residences (246 units) in 1H2023 and The Myst (408 units) in 2H2023, as well as an earnings contribution from Piermont Grand EC (revenue recognition on completion) in 2023.&rdquo

 

Over at UOL, revenue from property development rose 26% y-o-y to $1.98 billion. Patmi in FY2022 rose 60% y-o-y to $491.9 million, underpinned by property development and hotel operations.

 

Liam Wee Sin, group CEO of UOL, says the developer&rsquo s land banking strategy is to look for sites with &ldquo good attributes&rdquo . This includes being near good schools and transport nodes.

 

Moving from OCR to RCR

 

&ldquo We have moved to Ang Mo Kio and Canberra and now we&rsquo ve moved back to the locale of Pine Grove, Watten Estate and Meyer Park,&rdquo Liam says. &ldquo The luxury end has legs to go and we are moving towards a higher, more refined product. Good schools feature very strongly,&rdquo he adds. The Meyer Park site was confirmed four days before Singapore&rsquo s 2023 Budget when an increase in buyer&rsquo s stamp duties (BSD) was announced.

 

&ldquo It&rsquo s an 80:20 joint venture with Singapore Land Group and we are tilted towards bigger formats (of units). The redevelopment will comprise 200 units, and will be near good schools,&rdquo Liam adds.

 

In 2021, UOL acquired Watten Estate Condominium in a collective sale. &ldquo Watten Estate is a product in an enclave with very good schools. None of them got moved to Tengah,&rdquo Liam jokes referring to ACS Primary School. UOL plans a five-storey low-rise development.

 

Pinetree Hill, which is in District 21, was acquired in a land tender. &ldquo It&rsquo s in an established address in the Pine Grove area. We are launching it in 1H2023. It has similar attributes of being near good schools such as Henry Park Primary School,&rdquo Liam says. Singaporean parents like to stay within 1km&ndash 2km of good primary schools so their children have a higher chance of being admitted into those schools.

 

Liam is cognisant that costs have risen. While he declines to provide a clear profit margin for the group&rsquo s residential developments, he indicates that land and construction prices are rising. &ldquo But in our group, we&rsquo ve been able to de-risk our construction cost with established contractors, [as have] our minimum hurdle rates. We must move the product, sell, then replenish,&rdquo he says.

 

&ldquo For residential margins, it&rsquo s not about land price. It&rsquo s more about what can the market fetch when we launch and increasingly it&rsquo s a market where you have to control construction cost and efficiency. For example, at Meyer Park, we see a high rise with front and back unblocked. For AMO in Ang Mo Kio, the front is Bishan Park while the back is landed. We like this kind of a site,&rdquo Liam continues.

 

In his view, the new higher BSD will slow down the collective sale market. &ldquo Expectations will be wide and curtail freehold supply which is why we got Meyer Park quickly.&rdquo

 

Watten Estate was acquired at $1,786 psf ppr. Construction and marketing costs are likely to now be in the region of $500 psf&ndash $600 psf which would give UOL sufficient margin should it decide to launch the new development at a shade under $3,000 psf. Similarly, Meyer Park&rsquo s pricing is at $1,668 psf ppr leaving some margin depending on the pricing when it launches.

 

UOL&rsquo s conservative balance sheet

 

Clearly, UOL has one of the most conservative balance sheets among the developers. Its interest cover ratio in FY2022, including interest capitalised, is 9x, which is very robust for an asset-heavy entity. It is lower than FY2021&rsquo s 12x. UOL&rsquo s gearing &ndash defined as net debt to equity &ndash is just 0.26, unchanged y-o-y. UOL has unutilised credit facilities of $3.1 billion and cash of $1.47 billion.

 

On the other hand, UOL has been very careful about its overseas expansion. It has one development in London, The Sky Residences, which is 39% sold. Liam says the management team is looking at the best use of its current portfolio. For instance, the old Faber House in the heart of Orchard Road is being redeveloped as a hotel.

 

Singapore Land Tower is being refurbished to turn it into a green, environmentally-friendly building. Clifford Centre is being redeveloped completely. Both properties are held under Sing­ Land and will cost in the region of $500 million to $800 million.

 

Elsewhere, UOL has received in-principle approval to enlarge Odeon Towers from a site which was acquired for $79.3 million in December 2019. The new standalone seven-storey building &mdash opposite Raffles Hotel &mdash will cost around $35 million to develop.

 

As far as investment opportunities are concerned, UOL can afford to wait. Liam says, &ldquo We are looking at offices in key gateway cities. We have offices in London [110 High Holborn and 120 Holborn Island] and Australia [72 Christie Street, Sydney] and we would want to deepen our presence in those markets. We have seen cap rates expanding. Australia seems slower than London. In Australia, cap rates are expanding for secondary assets with short WALE and high vacancy. We are keeping our ears close to the ground.&rdquo

 

CDL&rsquo s overseas challenges

 

Perhaps, it is prudent for UOL not to rush into the overseas market. In FY2021, CDL announced an impairment of $1.78 billion for its $1.9 billion investment in Sincere Property, a Chinese developer. Subsequently, CDL divested Sincere for just $1. In FY2022, it made a further impairment of $82 million for Sincere.

 

Sherman Kwek, CDL&rsquo s CEO, explains: &ldquo It&rsquo s just out of prudence that we decided to write off the remaining part of it. Back in 2021, we did the write-down but it wasn&rsquo t 100%. This is the remaining $81 million. As you all can imagine, 2022 would be a great year to put the write-off through because of our record results.&rdquo

 

In 2015, CDL invested GBP158 million (about $334.96 million based on the then exchange rate of GBP1 to $2.12) in the freehold Stag Brewery land site in Mortlake, Richmond upon Thames. That same year, CDL also invested GBP85 million ($180.2 million then) in the Teddington Studios land site, which is in Richmond too. The latter was formerly the home of Pinewood Studios.

 

When asked why CDL recorded a $62 million impairment for the UK, group CFO Yiong Yim Ming says the impairment is largely for one of the projects, which remained unnamed but is likely the Teddington site.

 

&ldquo The progress of the project is a little bit delayed. The financing costs capitalised in the projects have increased the cost of the project, so it&rsquo s really a time return that was compromised. And, of course, we do have a big project, which is the Mortlake project. That project is still in the stages of getting planning approval. And that is very challenging in an environment today. There is, of course, a constant struggle for us to discuss with the relevant authorities. We feel it was timely to do an impairment for this project,&rdquo Yiong explains.

 

Whatever its past experiences, to grow its portfolio, CDL continues to look at more acquisitions overseas. This includes the potential acquisition of St Katharine Docks, a mixed-use development in London. Earlier this year, CDL was reported to be in talks to buy the development from Blackstone for around GBP400 million ($647 million).

 

&ldquo This acquisition as it&rsquo s been widely reported is circa GBP400 million. Our two UK office assets added together are valued at about GBP600 million and too small to do an IPO or a fund, especially if you want to attract strong institutional investors. This new acquisition brings our assets under management to around GBP1 billion. We&rsquo re well poised then to re-evaluate to get what we want to do, be it a public format like a REIT IPO or private format like a private equity fund,&rdquo Kwek elaborates.

 

CDL&rsquo s changing focus

 

Over the past year, CDL has steadily built its &ldquo living sector&rdquo portfolio, which includes private rented sector (PRS) and purpose-built student accommodation (PBSA) assets. In FY2022, it acquired six PBSA assets in the UK, two PRS sites in Australia, and another three PRS projects in Japan.

 

CDL&rsquo s UK living sector portfolio currently comprises around 2,400 PBSA beds and a pipeline of over 1,300 PRS units, inclusive of a 352-unit project in Manchester under CDL Hospitality Trusts (CDLHT). The portfolio has a combined AUM value of about $1 billion, based on the current gross development value.

 

In Japan, CDL has eight PRS assets across Yokohama and Osaka which account for 512 beds with a total AUM of $164 million. Meanwhile, the two PRS sites in Australia, located in Melbourne and Brisbane, will yield 490 units upon completion by 2026.

 

Break-up value

 

CDL may have the advantage to realise and monetise its assets. In 2022, CDL de-consolidated CDLHT by giving its shareholders 144.3 million stapled securities in CDLHT as a dividend-in-specie. This represented around 11.72% of CDLHT&rsquo s stapled securities in issue, leaving CDL with 27% of CDLHT.

 

The deconsolidation lowered CDL&rsquo s gearing ratio and provides the opportunity for CDL to feed its hotels of the REIT. This was confirmed by group COO Kwek Eik Sheng.

 

&ldquo On the M& C side, we always mentioned this multi-prong strategy. Of course, we are looking at divestments, and that could be either to third parties or to the REIT. I think in the past, we&rsquo ve said that we want to be a more active sponsor to the REIT. So there are some opportunities where we&rsquo ll try to push on those as well going forward,&rdquo Kwek says.

 

Elsewhere, CDL is redeveloping Fuji Xerox Towers into Newport Plaza comprising a 45-storey freehold development with 246 residences, serviced residences, offices and retail units. Therefore, part of the asset will be monetised when the residences are sold.

 

CDL is also planning to monetise Central Mall and Central Square. The combined site will be redeveloped into an enlarged mixed-use integrated development comprising office, retail, hotel and residential components. The residential component, with some 300 units, is expected to launch in 2H2024.

 

CDL&rsquo s monetisation of its commercial properties has more than offset the impairment loss and its investment in Sincere Properties. No surprise then that CDL has been the better performer over a one-year period, up 9% compared to UOL&rsquo s 3%.

 

Going forward though, UOL is rising on a price-to-book basis while below its mean while CDL&rsquo s price-to-book ratio is falling towards its mean.

City Developments Limited (CDL) C09 -0.5%   has reported earnings of $165.8 million for 2HFY2022, up 42$, on the back of a 27% improvement in revenue to $1.82 billion.

 

For the full year, the property and hospitality company posted all-time-high earnings of $1.29 billion, thanks to a operational recovery from the pandemic and a slew of divestment gains. For FY2021, it recorded earnings of just $84.7 million. Revenue for FY2022 was $3.29 billion, up 25.4%.

 

CDL plans to mark its diamond jubilee in style, by paying a final dividend of 8 cents per share, plus a special dividend of another 8 cents. With an interim special dividend of 12 cents already paid in September 2022, this brings total cash dividend for FY2022 to 28 cents.

 

In contrast, CDL paid a cash dividend of 12 cents for FY2021 and 20.2 cents worth from the distribution in specie of CDLHT units.

 

As at Dec 31 2022, CDL&rsquo s net asset value was $10.16, up 9.7%. The company maintains its conservative stance of stating its investment and hotel properties at cost less accumulated depreciation and impairment losses.

 

If fair value gains are factored in, CDL&rsquo s revalued NAV would be $16.98 as at Dec 31 2022, versus $15.73 as at Dec 31 2021. Had the revaluation surpluses of its hotels been included, the RNAV per share would be $19.14.

 

CDL&rsquo s executive chairman Kwek Leng Beng calls the FY2022 results a &ldquo sterling&rdquo one, driven by prudent divestments and strong operational performance from its core business segments.

 

&ldquo Notably, our hotel operations made an outstanding rebound, having recovered in most markets to pre-pandemic levels. Riding on the return of corporate travel and unabated pent-up demand for leisure travel, our hospitality segment will continue to strengthen and is poised to be a star performer for the year ahead.&rdquo

 

He notes that a key focus for CDL&rsquo s hospitality portfolio will be to accelerate plans for asset optimisation.

 

&ldquo We have embraced capital recycling and unlocked latent value via well-timed divestments and various asset enhancement initiatives,&rdquo says group CEO Sherman Kwek.

 

&ldquo All the while, we have been managing our capital prudently, reducing our gearing and strengthening our cash. While market uncertainties persist, CDL will continue to display discipline, agility, resilience and innovation so as to deliver sustainable growth and maximise long-term shareholder value,&rdquo he adds.

 

Significant divestment gains made by CDL over the past year include the sale of Millennium Hilton Seoul and the gain on the deconsolidation of CDL Hospitality Trusts (CDLHT), the collective sales of Tanglin Shopping Centre and Golden Mile Complex in 2H 2022 where CDL owns share values and strata areas.

 

According to CDL, the assets were held at book value over a long period of time, resulting in significant capital gains.

 

&ldquo This is a testament to the group&rsquo s ability to extract value at the most opportune time, enabling strong capital recycling,&rdquo says CDL.

 

For FY2022, property development remained the biggest contributor, accounting for 42% of the year&rsquo s revenue. Three key Singapore projects helped: Amber Park, Haus on Handy and Irwell Hill Residences.

 

CDL&rsquo s hotel operations, hurt like everyone else during the pandemic, rebounded strongly. Revenue for FY2022 was up 58% and RevPAR was up 91%.

 

&ldquo Over the past 60 years, the group has weathered many economic storms, property cycles and unprecedented disruptions, but we have always tackled the odds head-on and successfully emerged stronger," says chairman Kwek

 

" We will continue to apply this same discipline and tenacity to bring CDL to greater heights."

 

CITY Developments Limited : C09 +0.12%(CDL) said on Monday (Jan 30) that it is currently in discussions for the proposed acquisition of the St Katharine Docks (SKD) development in London, United Kingdom.

 

The company &ndash which was responding to media reports on the deal &ndash said in a bourse filing that acquisition is subject to satisfactory due diligence and negotiation on the terms. CDL added that it has &ldquo signed an exclusivity for due diligence together with a non-binding heads of terms&rdquo .

 

According to a media report by CoStar last week, asset manager Blackstone is in talks to sell St Katharine Docks marina to CDL for around £ 400 million (S$650.9 million).

 

CDL did not indicate the acquisition price in its bourse filing on Monday. It added that there is &ldquo currently no certainty&rdquo that the deal will materialise, and that it would provide further announcements if there are any material developments.

 

&ldquo As previously announced, the company is always examining opportunities to improve shareholder value and the SKD acquisition is one such opportunity,&rdquo CDL said.

 

CITY Developments Limited (CDL) : C09 +0.12% has made further inroads to the student accommodation sector in the United Kingdom (UK), with the acquisition of five such assets for £ 215 million (S$357 million).

 

The purpose-built student accommodation (PBSA) properties have a combined portfolio of 1,863 beds and an average committed occupancy rate of over 98 per cent, CDL said on Thursday (Dec 15).

 

The newly-acquired properties are located across the UK, spanning Birmingham, Canterbury, Coventry, Leeds and Southampton.

 

With the completed acquisitions, CDL now owns six PBSA properties totalling 2,368 beds in the UK. All properties are located in prime catchment areas close to key transportation nodes and prominent universities, according to the group.

 

&ldquo The UK student accommodation sector continues to demonstrate strong resilience as students return to campus post-Covid,&rdquo said CDL group chief executive Sherman Kwek.

 

&ldquo Our newly-acquired assets are strategically located in cities where there is high demand but traditionally underserved by a lack of supply, providing further rental growth potential in the longer term.&rdquo

 

The latest acquisitions come after CDL&rsquo s June acquisition of a 19-storey, 505-bed PBSA in Coventry, the UK, which marked its first foray into the segment.