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Thread: CDL, Alpha Investment in $1.1b office venture

  1. #1
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    Default CDL, Alpha Investment in $1.1b office venture

    http://www.straitstimes.com/business...office-venture

    CDL, Alpha Investment in $1.1b office venture

    Dec 16, 2015

    Chong Koh Ping


    Property giant City Developments (CDL) has structured another investment deal to unlock about $1.1 billion from its real-estate assets here.

    CDL will partner Alpha Investment Partners to set up a joint office investment platform, which will acquire three of its office buildings - one in the Central Business District, another near the CBD and the third, in Tampines.

    Private equity firm Alpha will invest $200.2 million, while CDL will inject $133.3 million through its subsidiary, Bestro Holdings.

    The remaining $750.1 million will come from borrowings from OCBC and DBS Bank.

    This "profit partnering security" investment, as it is called, is CDL's second such deal in 12 months. This is similar to a deal involving its Sentosa Cove properties about a year ago that helped it raise $1.5 billion.

    Under the new deal, Alpha, a wholly-owned subsidiary of Keppel Land, will be guaranteed an annual fixed payout of 5 per cent for five years.

    CDL chief executive Grant Kelley described the set-up as similar to a private equity investment.

    "The objective is to recapitalise the assets with a high-quality partner," said Mr Kelley, who described Alpha as the best real-estate private equity firm here for the past 10 years.

    Towards the end of the five-year period, both investors will look to "exit" the investment by selling the buildings. Mr Kelley said: "Just like a private equity deal, the returns to the investors are predominantly on the exit."

    This new deal is part of CDL's two-prong approach to diversify into different geographical regions outside Singapore as well as to venture into fund management.

    "When the market looks at fund management, especially for public companies like CDL, it traditionally looks at Reits," said Mr Kelley.

    But there are other ways to structure fund management. And such private-equity style structures offer more flexibility and a promise for an exit within a fixed period.

    Mr Kelley believes the partnership with Alpha will result in a "win-win" outcome, with the payout occurring in three tranches.

    When Alpha exits the investment after the buildings are sold, it will get back its entire investment of about $200 million and additional cash that will represent a return of 12.6 per cent on an equivalent annualised basis.

    After Alpha is paid, then CDL will get back its initial capital injection of about $133 million.

    Finally, Alpha and CDL will then share the rest of the proceeds of the sale in a 40:60 ratio.

    "Like any private equity structure, this incentivises the sponsor (CDL), to 'sweat' the asset, which is to maximise the yield and the value of the asset, for the best exit," said Mr Kelley.

    The suite of three office buildings - Central Mall, which is by the Singapore River; Manulife Centre beside Bras Basah MRT station; and 7 and 9 Tampines Grande in Tampines Regional Centre - were picked to provide Alpha with "a package of properties that it will find appealing".

    The buildings enjoy 98 per cent occupancy rates, have a good profile of tenants and have proved to be resilient over several business cycles, said Mr Kelley.

    While he admits that the outlook for offices in Singapore will be bad in the next two years, he is confident that things will pick up by 2018 and 2019. "This will represent good value for the investors," he said.

  2. #2
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    Default CityDev, Keppel Land unit in S$1.1b office venture

    http://www.businesstimes.com.sg/comp...office-venture

    CityDev, Keppel Land unit in S$1.1b office venture

    40-60 deal involves 3 CityDev properties and is aimed at recycling the firm's capital and strengthening its fund management capabilities

    By Lee Meixian

    [email protected]

    @LeeMeixianBT

    Dec 16, 2015


    CITY Developments (CDL) has struck a deal with Alpha Investment Partners, Keppel Land's property fund management arm, to create a joint office investment platform through its second Profit Participation Securities (PPS) transaction.

    This is CDL's second PPS. In December last year, CDL also set up a PPS structure to monetise the cash flow from its Quayside Collection assets - comprising hotel, retail and residential assets - in partnership with Blackstone Tactical Opportunities Fund and CIMB. The deal was worth S$1.5 billion.

    This time, the deal value is a shade lower, with assets from a different sector. CDL said that the investment platform would acquire three of CDL's prime office assets for S$1.1 billion. Alpha and CDL will co-finance the portfolio in the ratio of 60:40.

    The three assets are: Central Mall office tower, divested for S$218 million; 7 & 9 Tampines Grande, divested for S$366 million; and Manulife Centre, divested for S$487.5 million.

    CDL unit Bestro Holdings will subscribe for S$133.3 million of securities in the platform, while Alpha fund AAMTF II will contribute S$200.2 million. Lenders DBS Bank and OCBC will provide S$750.1 million in senior loan facilities. CDL declined to disclose the cost of debt.

    PPS is a fixed-term vehicle, designed to provide both yield and capital gain. Under it, CDL and Alpha will be entitled to a fully secured fixed coupon payout of 5 per cent interest per annum for a period of five years - coming from income produced by the properties, which are 98 per cent occupied.

    The eventual intention is to dispose the assets when market conditions are optimal. When this happens, AAMTF II will get its preferred returns of up to an internal rate of return of 12.6 per cent per annum, including the 5 per cent annual coupon already paid. CDL, after getting back its principal, will then take 60 per cent of any further profits on disposal. AAMTF II takes the rest.

    In a teleconference call, CDL CEO Grant Kelley told The Business Times: "This structure is very standard in the private equity world. It gives the investor the comfort that it is going to make a good return, and gives the sponsor - in this case, CDL - an incentive to get the maximum value for the assets."

    He added: "One of the things we found last year when we put together our first PPS with Blackstone and CIMB was that there is very deep capital for Singaporean-based assets among private equity real estate players. We believe there is a deep reservoir of capital available for these types of deals."

    CDL expects the office market to be in better shape in 4-5 years' time. Growth in the capital value of Singapore's offices should replicate, over the next five years on an annual average basis, the 10-year average historical growth rate of about 6.5 per cent, Mr Kelley said, although he noted that there could be periods of volatility within that time period, including a period of oversupply in 2016 and 2017. By the latter stages of the PPS, from 2018 to 2020, he expects market supply and absorption to re-align and once again be in equilibrium.

    The objective of the exercise is two-fold: to recycle capital, and to strengthen the firm's fund management capabilities, CDL executive chairman Kwek Leng Beng said in a statement. "Over the past two years, we have been advancing our two-pronged diversification strategy of developing new overseas and investment platforms. By building on the success of our first PPS transaction last year, this new initiative allows us to recycle capital for our growth plans.

    "In line with CDL's long-term investment perspective, we are committed to realising the capital appreciation potential of our real estate assets. By partnering our co-investor Alpha in this new PPS platform, we continue to remain a substantial investor in these prime assets."

    There was already some expectation in the market that something like this might happen. Earlier this year, CDL said in its results statement that it was "actively exploring the possibility" of one or more deals this year to further develop its fund management strategy.

    Asked if the market should expect CDL to launch more of such instruments going forward, Mr Kelley said only if there is demand in the market for the product.

    "At the moment, capital has formed heavily around very sophisticated private equity guys like Alpha and Blackstone. Certainly, we have other assets that we can contemplate but we wouldn't set any hard and fast rule that we'll do the same with another set of assets."

    Analysts BT spoke to spoke positively of the deal. DBS's Derek Tan said that this was an "excellent" way for CDL to extract value from an otherwise not-so-good portfolio. "It gives CDL some time to assess its options and plan an eventual exit, given that it may not be the best time in this market to offload assets. Meanwhile, CDL gets cash upfront to redeploy in the UK where it has been beefing up its presence."

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