CDL sells stake in Summervale Properties in $978m deal

[reporter2]

http://www.straitstimes.com/business...s-in-978m-deal

CDL sells stake in Summervale Properties in $978m deal

Oct 22, 2016

This is to avoid hefty penalties over unsold Nouvel 18 condo units

Wong Siew Ying


City Developments (CDL) has completed a complex financial deal that will allow it to avoid hefty penalties that were looming over unsold units at its Nouvel 18 luxury condominium near Orchard Road.

The developer has sold its equity stake in wholly owned Summervale Properties - which owns the condominium -for $977.6 million, via a Profit Participation Securities (PPS) scheme.The PPS deal involved equity shares worth $102 million that were offered to high-net-worth Singaporeans, $579.2 million in borrowings from DBS and United Overseas Bank and bonds amounting to $296.4 million.

These were taken up by DBS and CDL unit Ventagrand Holdings.

The developer told The Straits Times that 14 high-net-worth investors acquired the equity shares, with the investment sizes averaging around $7 million to $8 million each.

The deal means CDL no longer holds shares in Summervale, allowing the developer to save millions in charges it would otherwise have had to pay if it failed to sell all 156 units at the Anderson Road condominium by the end of next month. The project has yet to be launched for sale.

The freehold Nouvel 18 obtained its temporary occupation permit (TOP) in November 2014, and is valued at $965.4 million, or $2,750 psf based on its saleable area of about 351,000 sq ft.

The PPS deal - CDL's third since the initiative was introduced in 2014 - is part of the firm's strategy to grow its funds management business. It now has over $3.5 billion in funds under management from three PPS platforms. Another motivation behind the deal was about "de-risking the portfolio".

CDL chief executive Grant Kelley said: "The trade-off for us was whether to structure a deal today, at probably a lower price than the units intrinsically might be selling for three to four years from now, or... hold on to it, pay the necessary penalties and sell units below market value in a difficult market.

"We chose the former as a better mechanism for value creation for our shareholders."

The penalties Mr Kelley referred to relate to Qualifying Certificate (QC) rules applying to foreign developers - including Singapore developers listed here but with foreign shareholders.

Under the QC rules, CDL must sell all the units at Nouvel 18 by the end of November - that is, within two years of obtaining a TOP. If it failed to achieve that, the firm would have to pay extension charges related to the number of unsold units.

CDL would have taken a $38 million hit - or 8 per cent of the land purchase price - in the first year. The charges would jump to $76 million (16 per cent of land purchase price) in the second year and $114 million (24 per cent of land purchase price) in the third and subsequent years if all the units remained unsold. CDL's wholly owned subsidiary, Trentwell Management, will be appointed as the exclusive asset manager and marketing agent for five years with an option to extend to seven, to manage and sell the units of Nouvel 18.

The deal has bought CDL time to explore asset management strategies for Nouvel 18, in consultation with the new owners of Summervale Properties.

"I would think a leasing programme could be launched soon, and that a sales programme would likely come later... We are still looking at all the options," said Mr Kelley.

[reporter2]

http://www.businesstimes.com.sg/real...el-18-pps-deal

High networths join CDL's Nouvel 18 PPS deal

They include OSIM's Ron Sim, Straits Trading's Chew Gek Khim, Fragrance's Koh Wee Meng and developer Satinder Garcha

By Kalpana Rashiwala

[email protected]

@KalpanaBT

Oct 22, 2016


OSIM founder Ron Sim, The Straits Trading Company chairman Chew Gek Khim, Fragrance Group boss Koh Wee Meng, polo player and upscale property developer Satinder Garcha are among the high net worth Singaporean investors participating in City Developments' S$977.6 million deal to unlock the value of its completed Nouvel 18 condo.

The transaction enables CDL to avoid paying hefty extension charges under the government's Qualifying Certificate (QC) conditions for not meeting a two-year deadline that falls due next month to finish selling the 156-unit freehold project. At the same time, the listed property and hotel group headed by Kwek Leng Beng has unlocked capital for redeployment to more productive uses while having a cut on the potential upside from the eventual sale of the 156 units in the District 10 project.

The transaction, dubbed a profit participation securities (PPS) platform, values the completed condo development at S$965.4 million, or S$2,750 per square foot on total saleable area of around 351,000 square feet.

Located near the corner of Anderson Road and Ardmore Park, Nouvel 18 was jointly developed by CDL and Wing Tai. In July this year, CDL bought over Wing Tai's half-stake for S$410.96 million; that deal valued the completed condo at S$2,342 psf.

Analysts on Friday estimated that CDL would be able to book a net profit of around S$27 million, based on information on the net tangible asset per share boost from the transaction provided by CDL in a filing with the Singapore Exchange. The market expects CDL to reap a net cash inflow of about S$800 million.

The group said that its net gearing as at June 30, 2016, is expected to reduce from 27 per cent to 19 per cent (without factoring in revaluation gains in investment properties).

The QC rules, which are aimed at preventing hoarding and speculation of private-sector land by foreign developers, apply to any company that has even a single non-Singapore citizen director or shareholder.

Effectively, all listed companies including CDL are defined as foreign housing developers. The QC conditions stipulate deadlines for project completion, that is, receipt of Temporary Occupation Permit (TOP); in addition, the developer has to finish selling all units in the project within two years of the TOP date, which for Nouvel 18, was Nov 26, 2014. A developer that requires more time to finish selling its project will have to pay punitive rates for extension charges, although this is pro-rated to unsold units in the project.

What the deal announced on Friday morning has effectively done is to change the equity ownership of Summervale Properties, which developed Nouvel 18, from being 100 per cent owned by CDL (and hence subject to QC rules) to being fully owned by Singapore citizens and Singapore-incorporated companies which in turn are fully owned by Singapore citizens.

CDL said that Summervale received a Clearance Certificate from the government's Land Dealings (Approval) Unit on Thursday. The QC has also been cancelled.

CDL has sold its entire interest in Summervale under the PPS structure - the group's third in as many years. Of the S$977.6 million that Summervale is raising, S$102 million is through the issue of ordinary and preference shares (investment shares) to Green 18 Pte Ltd. CDL did not give any information on the shareholders of Green 18 - but a company search showed that it has 14 shareholders.

However, CDL did provide the key details of the PPS structure. Green 18 will enjoy a preferred 5 per cent annual internal rate of return (IRR) as well as upside beyond that, less any incentive fees payable. The duration of the investment shares issued to Green 18 is five years with an extension of two years possible.

DBS Bank and United Overseas Bank are providing S$579.2 million in senior debt for five years. The remaining S$296.4 million was raised from issuing notes (fixed-income securities) in two tranches. DBS Bank is the initial buyer of S$156.4 million notes due 2021, while CDL through its fully-owned subsidiary Ventagrand Holdings will subscribe for S$140 million notes due in 2023.

CDL's wholly-owned subsidiary, Trentwell Management, will be appointed as the exclusive asset manager and marketing agent (for five years with an option to extend to seven) to manage, lease, market and sell the units of Nouvel 18.

Trentwell will be entitled to receive a base annual management fee and an incentive fee after a performance benchmark is met. The performance benchmark ensures that Summervale will have funds to first repay the senior loan, followed by the notes issued to DBS Bank, redeem and deliver the annual 5 per cent IRR on the investment shares issued to Green 18. Ventagrand will rank behind the commercial banks and Green 18.

After the benchmark is fulfilled, Summervale will pay the remainder of the excess to Green 18 less any incentive fees payable to CDL's Trentwell.

The company search of Green 18 listed its two largest investors as two Singapore incorporated companies. One is Milton Walkers, whose shareholders are Christina Gaw (in her private capacity), a member of the family behind Gaw Capital; and a Singaporean colleague of hers at Gaw Capital.

The other is KT Mesdorm, which is fully owned by dormitory operator Mini Environment Service. Another corporate shareholder of Green 18 is Elevation Developments, controlled by Mr Garcha. Green 18's individual Singaporean shareholders include Genting Singapore PLC director Tan Hee Teck, besides Messrs Koh, Chew and Sim.

Some analysts note that although CDL would not be making a huge profit from its latest PPS deal, it would enjoy significant savings by not having to pay extension charges.

A developer that comes under QC conditions and that requires more time to sell its project has to pay 8 per cent of the site's purchase price in the first year of extension; in the case of Nouvel 18, this would have worked out to around S$38 million. The charge would have escalated to S$76 million (or 16 per cent of the land purchase price) in the second year and 24 per cent of the land purchase price per annum in the third and subsequent years.

CDL's maiden PPS exercise, for S$1.5 billion in 2014, involved a tie-up with Blackstone's Tactical Opportunities Fund and the Labuan unit of CIMB Bank Berhad that invests in the cashflows of the group's Quayside Collection properties on Sentosa Cove.

In the following year, CDL executed its second PPS platform involving a joint investment with Alpha Investment Partners in a S$1.1 billion office portfolio comprising three CDL properties - Central Mall (Office Tower), Manulife Centre, and 7 & 9 Tampines Grande.

Said Grant Kelley, CDL chief executive: "Since embarking on our funds management strategy in 2014, CDL is on track to achieve our target of S$5 billion in funds under management (FUM) within five years. Having successfully executed three PPS platforms to date, we now have over S$3.5 billion in FUM.

"Our latest PPS initiative is unique as it has attracted a new pool of untapped Singaporean high net worth investors, as compared to the previous two which targeted institutional investors. The funds raised will also allow us to unlock shareholder value and further recycle capital for our growth plans."