Real estate giant City Developments Ltd (CDL) is stepping up plans to redevelop its older commercial buildings in Singapore’s central business district after the COVID-19 pandemic dragged the group’s net profit in the first six months of the year.
CDL said it had submitted plans to the Urban Redevelopment Authority to redevelop the 38-storey Fuji Xerox Tower office building in the Tanjong Pagar district and the seven-storey Central Mall office and retail complex on Havelock Road. Both properties can be granted higher plot ratios under the government’s incentive schemes.
The SGX-listed developer unveiled the redevelopment plans on Thursday as it reported a 99 percent slump in net profit in the first six months of the year, compared to the same period in 2019. CDL, which has some S$23.8 billion ($17.4 billion) of assets under management globally, eked out just S$3 million in net profit from January through June as the group’s hotel business posted losses, new homes sales slowed and revenues from investment properties declined due the severe impact from the pandemic.
COVID-19 Erodes Organic Growth
“The COVID-19 pandemic has overshadowed core business fundamentals and eroded organic growth, rendering many businesses in a weakened state as they continue grappling with macroeconomic uncertainties beyond their control,” said Kwek Leng Beng, executive chairman of CDL, said. “While our property development and investment properties segments have remained relatively resilient, our hotel operations continue to face pressures in the subsequent quarters.”
The company’s Millennium & Copthorne unit was the hardest hit by the pandemic as cities around the world shut their international borders to curb the further spread of COVID-19. The hospitality operator posted a pre-tax loss of S$208 million, which included a S$34 million asset impairment charge. That’s 49 percent higher than the S$140 million pre-tax loss it had forecast last month.
Despite the challenging economic environment, CDL has been actively investing across key markets around the world. In April, the company agreed to buy a 51 percent stake in Chongqing-based Chinese developer Sincere Property Group for RMB 4.39 billion ($632.4 million). In the same month, the company increased its stake in IREIT Global, a pan-European real estate investment trust, to 20.9 percent.
Last month, CDL added to its portfolio of rental apartments in Japan with the acquisition of a 10-storey freehold property in Yokohama. In recent years, the company has been growing its presence in the country where it currently owns residential assets across Osaka and Tokyo.
Rejuvenating Singapore CBD Assets
The company will continue with its growth and transformation strategy as it navigates through this unprecedented economic crisis, said Sherman Kwek, CEO of CDL.
In line with that approach, the company will proceed with the redevelopment of the Fuji Xerox Tower in Tanjong Pagar and the Central Mall on Magazine Road, once Singapore government approvals are secured.
CDL plans to build a 51- storey mixed-use commercial, residential and serviced apartment tower with a gross floor area of 655,000 square feet (60,851 square meters) on the Fuji Xerox Tower site at the southern end of the downtown core. The new building will yield 25 percent more GFA than the existing office complex on the site.
Over near Clarke Quay, the company plans to demolish Central Mall and build a mixed-used office, retail, hotel and serviced apartment complex. CDL didn’t provide the expected GFA for the project, although the existing structure on the site at the heart of the historic Singapore River has a built up area of 240,000 square feet.
Across the Singapore River from the Central Mall site, CDL had earlier partnered with Singapore government-linked developer CapitaLand to jointly redevelop the Liang Court Shopping complex along Clarke Quay into a mixed-use project comprising two residential towers with 700 units, a 475-unit hotel and a 192-unit serviced apartment component.
Rising Appetite for Redevelopment
CDL’s redevelopment plans come as the government’s CBD incentive scheme aimed at transforming the city’s ageing districts and promote residential development in the urban core has helped revive deal-making in Singapore office properties in recent months.
Just this week, Tuan Sing Holdings agreed to sell the Robinson Point office building near Raffles Place for S$500 million ($364.2 million), or 34 percent over the property’s book value. That above market deal came after real estate investment in Singapore fell by more than two-thirds during the first six months of 2020.
In July, property developer Fragrance Group made available for purchase its 29-storey office tower on the edge of the Raffles Place central business district at an asking price of S$715 million. The building is about five minutes’ walk from CDL’s Fuji Xerox Tower.
Also last month, financially troubled Pacific International Lines, Singapore’s largest container shipping company, put its office building near Raffles Place on the market for an indicative price of S$350 million.
No Fire Sales
“We’ve been approached by parties asking if we want to sell some of our buildings,” said Sherman Kwek, son of CDL’s executive chairman. “But we would rather redevelop and reposition these assets.”
It makes sense for CDL to hold on to these assets, said Vijay Natarajan, an analyst at RHB Securities in Singapore. “Singapore is a crown jewel for CDL,” Natarajan said. “There’s scope for CDL to monetise some of Sincere’s assets in China or sell some assets in the UK into a REIT.”
The company is considering selling some non-core hotel assets and investment properties held by Sincere Property in China, the younger Kwek said. Such divestments will take some time as “we don’t believe in fire sale,” he said.
Sincere Property has a portfolio of 27 investment properties in China, including the Chengdu Hilton Hotel and the CHINT-TUS Harbor business park in Shanghai’s Songjiang district, as well as the Starlight [email protected] Centre mall and the Xinhua Sincere Center in Chongqing.
The group is also looking into the possibility of spinning off some of its hotel properties in the UK into a REIT that could eventually be listed on the Singapore bourse.
Attractive Stock Price
CDL shares rose 1.4 percent to S$8.46 at the close of trading in Singapore. The stock looks attractive since it trades at about half of its revised net asset value of S$16.61, RHB’s Natarajan said.
As the pandemic continues to wreak havoc on the global economy, CDL will prioritise cost-containment measures and strengthen its balance sheet. The group currently has cash and credit facilities exceeding S$5 billion.
“Over CDL’s 57-year history and track record, we have survived numerous challenging times, each one more difficult than the last,” the older Kwek said. “Armed with our strong balance sheet and globally diversified portfolio, we remain confident in navigating through and tiding over this storm.”