City Developments Limited - OCBC Investment 2015-12-16: Structures 2nd PPS with Alpha Investment Partners

City Developments Limited - OCBC Investment 2015-12-16: Structures 2nd PPS with Alpha Investment Partners CITY DEVELOPMENTS LIMITED C09.SI 

City Developments Limited: Structures 2nd PPS with Alpha Investment Partners 

  • CDL announced that it would form a joint investment entity with Alpha Investment Partners Ltd to acquire three office properties valued at S$1.1b. 
  • These three assets are Central Mall Office Tower (S$218.0m), 7 & 9 Tampines Grande (S$366.0m) and Manulife Centre (S$487.5m). 
  • Alpha and CDL will co-finance the portfolio on a 60:40 basis and subscribe to S$200.2m and S$133.3m of Profit Participation Securities (PPS) respectively, which will pay a fully secured 5% interest per annum for five years. The rest of the portfolio will be financed by S$750.1m of senior loan facilities from DBS and OCBC. 
  • This transaction provides Alpha with preferred returns up to an internal rate of return of 12.6% per annum, after which CDL will receive all cash flows until its capital is repaid. 
  • Further upside sharing would follow on a 40:60 basis between Alpha and CDL, respectively. 
  • We like that CDL continues to monetize its non-core assets and strengthen its balance sheet effectively in a slowing market using its Profit Participation structures, which sets up an attractive proposition for investment partners, and believe the market would likely react positively to this latest development. That said, we remain cognizant of the headwinds in the group’s core domestic development segment and see challenging conditions going forward. 
  • Maintain HOLD with an unchanged fair value estimate of S$8.35. 



Eli Lee CFA OCBC Securities | http://www.ocbcresearch.com/ 2015-12-16
OCBC Securities SGX Stock Analyst Report HOLD Maintain HOLD 8.35 Same 8.35


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