Singapore-listed City Developments Ltd today announced RMB 6.7 billion ($974 million) in new investments in mainland China, including plans to take a 24 percent stake in mainland developer Sincere Property Group, and the acquisition of a Shanghai commercial asset from the Chongqing-based firm.
The pair of transactions constitute CDL’s biggest commitment ever in China, where the company controlled by Singapore’s billionaire Kwek family has been operating since 2010.
“This transformational deal is CDL’s single largest investment in China to date,” CDL group chief executive officer Sherman Kwek said in a statement. “It is a rare opportunity to acquire a meaningful stake in an established platform at an attractive valuation.”
Gaining Access to Mainland Projects
The largest part of the investment, which CDL describes as charting its next phase of growth in the mainland market, involves CDL committing to a share subscription and a four-year interest-bearing loan worth up to RMB 5.5 billion in return for what the developer termed a 24 percent effective equity stake in Sincere Property to be held indirectly by the Singaporean firm via the mainland company’s offshore investment vehicle.
The deal will make CDL the mainland developer’s second largest shareholder after Sincere’s founder and chairman, Wu Xu. CDL would also be entitled to representation on Sincere’s Board at both the offshore and onshore levels and have the right to participate in key decision making, according to the statement.
CDL hailed the stake acquisition, which is expected to be completed in the fourth quarter of this year, as expanding the company’s geographic presence in China from three to 20 cities while rebalancing its portfolio allocation to China from nine percent to 15 percent.
The company, which today announced first quarter earnings of S$357.4 million ($261 million) also noted that ownership in Sincere Group would give it immediate access to a land bank equivalent to 12.6 million square metres (135.6 million square feet) of gross floor area across 70 development projects while broadening CDL’s asset classes to include business parks and serviced apartments.
“Leveraging Sincere’s development and asset management capabilities, local expertise and wide geographical presence in China, CDL will be able to significantly boost its scale and accelerate its growth in this huge market with a substantial portfolio and pipeline of development projects and investment properties,” Kwek noted in the statement.
CDL Takes Over Shanghai Commercial Project
In separate transaction announced together with the agreement buy shares in Sincere, CDL revealed that it had agreed to acquire 70 percent of the equity in a Shanghai commercial project from its new partner for RMB 1.2 billion ($174 million).
The target property is phase two of Shanghai Hongqiao Sincere Center, a 34,739 square metre complex 10 minutes drive from the Hongqiao transportation hub in western Shanghai’s Minhang district, with CDL paying the equivalent of RMB 49,000 per square metre for the asset.
The 11 building project includes offices, serviced apartments, a retail component and a basement car park with 384 lots. Expected to be completed in the third quarter of this year, CDL projects a stabilized net operating income yield for the property of approximately four percent, with the company emphasising that the investment is in line with its focus on enhancing its recurring income.
CDL is already familiar with the neighbourhood around its new project after having acquired the Meidao Business Plaza, a 32,000 square metre commercial development also near the Hongqiao transportation hub, for RMB 900 million in 2017.
Chongqing Developer Sees Path to Expansion
“CDL’s investment and support will be instrumental in accelerating Sincere’s growth as we continue to increase our land bank and pipeline of properties with the aim of achieving even stronger sales growth,” said Wu Xu, Sincere’s founder and chairman.
Ranked 69th among China’s top 100 developers by the China Real Estate Association in 2018 and fourth among China’s top business park developers and operators by real estate information provider Guandian, Sincere is involved in development and asset management of residential and serviced apartment properties, as well as a range of commercial projects across the retail, office and business park spectrum, in addition to large-scale mixed-use development.
The Chongqing developer’s contracted sales grew at a compounded annual growth rate of 47 percent from RMB 9.9 billion in 2016 to RMB 21.3 billion in 2018, according to the statement.