During a results briefing by City Developments (CDL), CEO Sherman Kwek said the group is exploring establishing a REIT listed on the Singapore Exchange for its commercial assets in UK and would most likely aim for a listing in 1Q2021. In 2018, CDL acquired 125 Old Broad Street with net lettable area 328,819 sq ft for GBP385 million and Aldgate House with NLA of 210,504 sq ft for GBP183 million in 2018.
In 2016, CDL bought Development House in Shoreditch, a six-storey office building with NLA of 28,266 sq ft for GBP37.4 mil-lion. It is being developed in to 71,700 sq ft of space of which 2,024 sq ft will be allocated for retail and 7,147sq ft will be affordable workspace.
The yield for 125 Old Broad Street is 4.8% and for Aldgate House, 4.6%. With quantitative easing expected to continue at least till 2022, a 30–40% debt to asset ratio would provide distribution per unit yields of more above 5%. Given that Elite Commercial REIT is trading at just shy of 7%, CDL could easily list its REIT with its inevitably cheaper cost of capital. In March, CDL said in a statement to the SGX that the pipeline assets had not been finalised. “We are excited to set up a REIT in Singapore as and when market conditions allow,” confirms Frank Khoo, chief investment officer at CDL. “We will be delaying the potential REIT listing; we are looking for a Q1 listing next year,” he adds.
Separately in China, CDL completed its ac-quisition of Sincere, a Chinese developer that has a portfolio of retail and residential properties. Kwek says, “They are still too heavy on retail. We need to optimise the capital structure because of too much leverage and we’re looking at debt restructuring and asset divestment.”
At one point, CDL was looking into a retail REIT with Chinese assets that could potentially list either in Singapore or China. “We have been looking at this REIT proposal for a few years but [the Chinese regulators] only allow the listing of infrastructure REITs at the moment. We looked at listing a REIT in Singapore with China retail assets and some retail mall players are also interested but the problem lies in the yield. With high borrowing costs in China, the assets have a negative yield so from a yield perspective it would be prohibitive,” Khoo explains.
In April, CDL acquired additional 8.4% effective stake in IREIT Global for $25.5 milion, taking its stake to 21.4%. On Aug 7, IREIT Global’s manager announced it plans to exercise the call option to acquire the 60% of four Spanish properties it does not own from Tikehau Capital, for around EUR47.8 million ($77.4 million). In Dec, CDL had lent IREIT EUR32.0 million to acquire the properties. On a 100% basis this Spanish portfolio cost EUR133.8 million.
To fund the transaction and to repay CDL, IREIT Global’s manager has announced a renounceable non-underwritten, dilutive rights issue of new units in IREIT, to raise EUR90 million. Rights units will be issued to existing unitholders on a pro rata basis. CDL has provided an undertaking to subscribe to its stake and to take up the excess. If CDL takes up all its share of excess units, its stake will rise to 24.5%.
