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City Developments Limited (CDL) has partnered Keppel Land’s Alpha Investment Partners Limited (Alpha) in its second Profit Participation Securities (PPS) platform, to acquire three of its prime office assets for S$1.1 billion.
In a press statement on Tuesday (15 December), CDL revealed that it will sell three of its properties – Central Mall (Office Tower) for S$218.0 million, Manulife Centre (pictured) for S$487.5 million and 7 & 9 Tampines Grande for S$366.0 million – to Golden Crest Holdings, a joint investment entity set up by Alpha Investment Partners, through Alpha Asia Macro Trends Fund II (AAMTF II), and CDL.
The portfolio will be co-financed by Alpha and CDL in the ratio of 60:40 (S$200.2 million by Alpha and S$133.3 million by CDL), with DBS and OCBC providing S$750.1 million in senior loans.
Under the PPS transaction, CDL and Alpha will receive a secured fixed coupon payout of five percent interest per annum for a period of five years. The transaction provides Alpha with preferred returns to an internal rate of return of 12.6 percent per annum, following which CDL will then receive all cash flows until its capital is fully repaid. Thereafter, further upside sharing between Alpha and CDL will be in the proportion of 40:60 respectively.
Meanwhile, CDL will continue to manage the office assets portfolio, which currently has a strong occupancy of 98 percent, with a good mix of large multinational corporations (MNCs), financial institutions, small medium enterprises (SMEs) as well as food and beverage (F&B) outlets.
According to Credit Suisse, CDL has essentially “managed to unlock value on its balance sheet at a favourable valuation, though a partial divestment of the 60 percent interest in these office assets, while retaining upside potential from future divestments of these assets to third parties upon the turn of the office cycle.”
“We are positive on the deal, as it effectively allows CDL to: (1) realise a healthy gain on divestment of S$227.3 million, (2) crystallise value on its balance sheet through a narrowing of the discount to RNAV, and (3) recycle net cash inflow of c. S$850 million (after transaction costs and other fees etc.) for future investments,” it said.
“The monetisation of CDL’s office assets at favourable valuations despite looming concerns over the oversupply in the office sector is also testament to CDL’s willingness and ability to unlock shareholder value in the assets on its balance sheet.”
As such, the Swiss financial institution maintained its outperform rating for CDL and TP of S$12.00, which implies 66 percent potential upside from current levels.
Image source: CDL
Nikki De Guzman, Editor at CommercialGuru, wrote this story. To contact her about this or other stories email nikki@propertyguru.com.sg
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