Gearing aside, the developer&rsquo s other financial ratios offer upsides, says analyst

[SINGAPORE] News of City Developments Ltd&rsquo s (CDL) sale of its 50.1 per cent majority stake in the South Beach mixed project put some bounce in the property developer&rsquo s share price last week, but analysts were less sanguine, due to the company&rsquo s high debt and interest costs.

 

The S$834.2 million divestment is expected to unlock S$465 million in disposal gains that would help trim CDL&rsquo s bank borrowings, which stood at S$1.2 billion as at end-2024. This would improve net gearing by 14 basis points, from 117 per cent to 103 per cent, noted UOB Kay Hian analyst Adrian Loh.

 

&ldquo However, we found it interesting that the company also chose to add that the capital unlocked would allow it to pursue new acquisitions, which were one of the factors contributing to its current high levels of gearing,&rdquo he added.

 

In FY2024, CDL&rsquo s group interest cost surged to S$588.7 million from S$485.8 million the year before due to a higher loan burden. Total interest-bearing borrowings rose to S$13.3 billion from S$11.6 billion in 2023.

 

Loh expects CDL to post similar interest expenses this year, especially since expectations for the US Federal Reserve making significant rate cuts are fading.

 

CDL&rsquo s board believes the sale aligns with its strategic focus on capital recycling. The group aims to divest S$1 billion in assets, and has announced about S$600 million in divestments so far. 

 

Its gearing aside, the developer&rsquo s other financial ratios offer upsides. Assuming the South Beach transaction had been completed at the end of 2024, CDL&rsquo s net tangible assets per share would have risen 5 per cent to S$10.68, said Loh.

 

Meanwhile, the gains from the sale would have boosted the company&rsquo s earnings per share by 2.3 times to S$0.712, he added.

 

The analyst also said: &ldquo Executive chairman Kwek Leng Beng and CEO Sherman Kwek were both in concurrence that this was a strategic divestment and a good opportunity to crystallise its value.&rdquo

 

Loh maintained a &ldquo hold&rdquo call on the stock, with a target price of S$4.60, a 12.4 per cent downside from Friday&rsquo s (Jun 6) closing price of S$5.25.

 

He added that further capital recycling efforts to deleverage and a more consistent execution of this strategy are necessary to re-rate the stock.

CDL&rsquo s share price rose 8.5 per cent over the week to close at $5.25 on June 6.

 

SINGAPORE &ndash City Developments Limited (CDL) popped last week, after it announced it will sell its 50.1 per cent stake in the South Beach mixed project to its Malaysian partner&rsquo s IOI Properties Group for about $834.2 million.

 

The transaction is expected to result in a gain on disposal of about $465 million for the financial year ending Dec 31, 2025, which will be used to reduce bank borrowings and lower its debt, CDL said on June 4.

 

The company had said in 2024 that it aimed to divest $1 billion in assets, and has announced about $600 million in divestments so far.

 

CDL&rsquo s share price, which had declined following a public dispute between executive chairman Kwek Leng Beng and his son, chief executive Sherman Kwek, over control of the company&rsquo s board, rose 8.5 per cent over the week to close at $5.25 on June 6.

 

SIA Engineering hit a five-year high of $2.98 on June 6, outperforming its average target price of $2.71 as investors ploughed into the stock.

 

The aircraft maintenance provider has been a favourite stock pick among analysts, who have begun identifying companies that could benefit from an expected capital infusion into local stocks before the end of the year.

 

As part of an effort to revive the stock market, the Monetary Authority of Singapore will be allocating $5 billion in seed capital to Singapore-based funds for investing in local stocks, and expects to shortlist suitable investment strategies by end-September.

 

Great Eastern to address share trading suspension

Great Eastern Holdings on June 6 finally announced that minority shareholders will be able to vote on the delisting of the insurance company or a resumption of trading, nine months after its shares were suspended from trading on the Singapore Exchange (SGX) due to an insufficient public float of less than 10 per cent.

 

If shareholders vote in favour of delisting, major shareholder OCBC Bank will make a final exit offer of $30.15 per share, valuing the remaining 6.28 per cent it does not own at $900 million.

 

This revised offer represents a 17.8 per cent premium over OCBC&rsquo s initial offer of $25.60 per share in May 2024. Independent financial adviser (IFA) Ernst & Young has assessed the new offer as fair and reasonable, after previously finding the earlier offer unfair but reasonable.

 

The delisting decision will be made solely by minority shareholders, as OCBC &ndash which already owns 93.72 per cent &ndash will abstain from voting.

 

The proposal requires at least 75 per cent approval at the upcoming extraordinary general meeting.

 

Of the 6.28 per cent of shares that OCBC currently does not own, two prominent shareholder families &ndash the Lees and the Wongs &ndash own a combined 3 per cent.

 

In January, it was reported that OCBC CEO Helen Wong had met them to persuade them to accept the earlier offer, though those efforts were reportedly unsuccessful.

 

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The Lee family, which has ties to OCBC&rsquo s founding, is expected by some to support the delisting. However, if the Wongs choose not to vote in favour, the resolution would require unanimous support from the Lees and the rest of the minority shareholders to pass.

 

If the delisting vote fails, shareholders will then vote on whether to resume trading of Great Eastern&rsquo s shares. This resolution also requires 75 per cent approval. OCBC will be able to vote on this resolution.

 

Under the trading resumption plan, Great Eastern will carry out a one-for-one bonus issue, giving shareholders a choice of receiving either regular voting shares or Class C non-voting shares.

 

OCBC has indicated that if the delisting does not go through, it will vote in favour of the trading resumption and choose to receive Class C shares, at Great Eastern&rsquo s request. This move would reduce OCBC&rsquo s voting stake from 93.72 per cent to 88.19 per cent, restoring the minimum public float required for trading to resume.

 

OCBC has also stated that if the delisting fails and trading resumes, it has no intention of making another offer for the remaining shares.

 

Some analysts view the revised offer positively, noting that it is now considered fair, is in line with peer valuation multiples and offers a 17.8 per cent premium over the earlier bid.

 

However, they also caution that if trading resumes, liquidity in Great Eastern shares is likely to be limited due to OCBC&rsquo s more concentrated shareholding in the company.

 

Other market movers

Units of Keppel DC Real Estate Investment Trust (Reit) rose 2.3 per cent to $2.24 on June 6, after it was announced that the Reit will replace Hong Kong-based conglomerate Jardine Cycle & Carriage on the Straits Times Index (STI), following a quarterly review.

 

The move, which will take effect on June 23, increases the total number of Singapore Reits on the index to eight, and is expected to increase their combined weight in the index to more than 10 per cent.

 

Internet service provider NetLink NBN Trust will replace Keppel DC Reit on the STI&rsquo s reserve list. The other four companies on the reserve list are CapitaLand Ascott Trust, ComfortDelGro, Keppel Reit and Suntec Reit.

 

Oiltek International, a provider of vegetable oil processing technology, jumped by more than 9 per cent to 60.5 cents on June 6, when it successfully transferred its listing from the Catalist to the SGX mainboard.

 

The company first listed in March 2022 at 23 cents per share.

 

CEO Henry Yong said the move will enable Oiltek to gain greater visibility, liquidity and access to capital.

 

Ms Lee Khai Yinn, a partner at SAC Capital, which was Oiltek&rsquo s former sponsor, said the company&rsquo s move to the mainboard is an example of how the Catalist can serve as a platform for emerging firms to scale and succeed.

 

Shares of Singapore Paincare Holdings rallied last week after the Securities Investors Association (Singapore), or Sias, noted that a privatisation offer of 16 cents on May 27 undervalues the stock.

 

Sias noted that Singapore Paincare was listed at 22 cents per share at a premium to its unaudited net asset value per share in July 2020 during Covid-19, when valuations were depressed and the STI was trading at around 2,500.

 

It pointed out that the company should now be valued at a similar premium, at around 36 cents to 37 cents, given that the STI is trading at around 3,900, and &ldquo well-managed healthcare companies generally trade at premiums to their net asset value&rdquo .

 

In any case, minority shareholders of Singapore Paincare should wait for a report to be released by an appointed IFA before selling their shares on the open market, said Sias.

 

Shareholders who do sell on the open market will not have recourse if the privatisation offer price is subsequently revised upwards, Sias added.

 

It also reminded shareholders that &ldquo for a delisting to take place, the IFA has to conclude that the offer is both fair and reasonable&rdquo .

 

The Catalist-listed counter closed on June 6 at 17.4 cents, up 11.5 per cent through the week.

 

What to look out for this week

All eyes will be on US consumer price index data for the month of May, which will be released on June 11.

 

US consumers probably saw slightly faster inflation in May, notably for merchandise, as companies gradually pass along higher import duties, Bloomberg quoted analysts as saying.

 

Despite US President Donald Trump&rsquo s efforts to pressure the Federal Reserve into quickly lowering interest rates, Fed chairman Jerome Powell has indicated they have time to assess the impact of trade policy on the economy, inflation and jobs market.

 

City Developments (CDL) and IOI Properties Group (IOIPG) have entered into a share sale agreement for their joint venture (JV) South Beach mixed-use integrated development. Under this agreement, IOIPG will acquire CDL&rsquo s 50.1% interest in the development, based on an agreed property value of $2.75 billion on a 100% interest basis, which represents an approximately 3% premium over the latest valuation of $2.67 billion as of Dec 31, 2024.

 

Based on CDL&rsquo s proportionate 50.1% share of its consolidated net assets as of April 30, the estimated sale consideration is $834.2 million. Both the net tangible asset (NTA) value and the net asset value (NAV) of the disposal shares are $366.5 million. The proposed disposal will result in an estimated gain of $465 million for Dec 31, 2025, the company says.

 

A Singapore Exchange(SGX) announcement says the disposal is NTA accretive based on an FY2024 pro forma basis, taking NTA from $10.17 per share to $10.68. Pro forma gearing based on fair value will fall from 0.69 times to 0.63 times. Pro forma gearing based on historical cost will fall to 1.03 times from 1.17 times, while pro forma earnings per share will surge to 71.2 cents from 21.3 cents.

 

JP Morgan estimates that net gearing (including fair value on investment properties) will fall to 0.66 times from 0.72 times at end-1Q2025.

 

According to the SGX announcement, the rationale for the transaction is to reduce bank borrowings and improve net gearing ratios. Moreover, since acquiring the South Beach site in 2007 and completing South Beach in 2016, the property has reached maturity and in 1QFY2025 announced an occupancy of 92.4% and 92.5% for office and retail, respectively.

 

Market watchers dread Mortlake cost

 

Cash proceeds from the transaction will enable CDL to pursue new acquisitions, invest in upcoming pipeline development projects and optimise its capital management, CDL says. Among the projects it could be eyeing is the redevelopment of the Mortlake, Stag Brewery site in South West London. In its 1Q2025 business updates, CDL announced that the gross development value of the site is GBP1.1 billion ($1.92 billion).

 

JP Morgan says the sale of South Beach at book value will help close the large 50% discount to book and would be ROE-enhancing. &ldquo The next positive catalyst is a potential disposal of the former Stag Brewery site in Mortlake, South West London, that recently received planning approval and which CDL had acquired for GBP158 million ($335 million at the time of acquisition versus $274 million at the latest GBP/SGD rate) in 2015,&rdquo JP Morgan says.

 

UOB Kay Hian says: &ldquo We found it interesting that the company also chose to add that the capital unlocked would allow it to pursue new acquisitions, which was one of the factors contributing to its current high levels of gearing. CDL&rsquo s balance sheet will remain burdened by high interest costs and debt for 2025.&rdquo

 

Another analyst who covers CDL reckons that the capital recycling is for the group to have sufficient funds to redevelop Mortlake, a decision which he believes will be viewed negatively by the market. The Mortlake redevelopment is significant.

 

In a business update on May 20, CDL said: &ldquo After undergoing a decade-long design and planning application process, the group finally obtained approval for a GBP1.1 billion residential-led mixed-use scheme on the former Stag Brewery site in Mortlake, South West London, for 1,068 homes, a 1,200 pupil secondary school academy, retail, offices, hotel, cinema and nine acres of green space. The group will review its plans for the site now that planning consent has been granted.&rdquo

 

What the biography says about South Beach

 

&ldquo We see this potential sale as an encouraging first step to CDL having a credible de-leveraging plan, given the prior reluctance to accede control of the project to IOI Properties and potential sentimental attachment to the South Beach site as described in the CDL chairman&rsquo s biography, Strictly Business,&rdquo JP Morgan says.

 

In the biography, author Peh Shing Huei describes chairman Kwek leaning on his business associates Dubai World and Elad Group, an Israeli real estate company, to joint-venture with CDL to develop the South Beach site. All three had a one-third stake. In 2011, Elad sold its stake to IOIPG.

 

&ldquo CDL and IOI restructured their interests to allow IOI to raise its stake to 49.9%. CDL would hold the majority stake in the consortium with 50.1%. Both sides pumped in fresh funds to redeem the mezzanine notes,&rdquo the biography says.

 

&ldquo Behind closed doors, teething problems came to the fore between CDL and IOI. The Malaysian side wanted parity and pushed the Singaporeans to sell the 0.1% to them. But Kwek, having been burnt by the Arab-Israeli saga, refused. Operationally, Kwek gave instructions to treat IOI as equal partners and consult the Malaysians on all major decisions,&rdquo the writer continues.

 

According to official biographer Peh, Kwek Hong Png had started Hong Leong as a general trading company somewhere near the South Beach site. &ldquo Kwek Hong Png forged ahead with his new company in a shophouse along Beach Road, by the southern waterfront of Singapore. It is a location to which his son would return to nearly 70 years later with one of his iconic projects.&rdquo

 

A few wrong turns

 

In the past 25 years, CDL, once the darling of the institutions, took three wrong turns. The first involves spending around $1 billion on properties in and around London in 2013&ndash 2015, most of which are not as productive as their Singapore counterparts to this day. The Mortlake site is one of them.

 

As though acquiring unproductive properties was not enough, CDL spent GBP395 million (or $636 million at the time) in March 2023, buying St Katharine Docks from funds advised by Blackstone.

 

Secondly, CDL decided to privatise Millennium & Copthorne in 2019, just before the Covid pandemic. CDL, which owned a controlling 62.5% stake in Millennium & Copthorne (M& C) Hotels, bought back the remaining shares it did not own for GBP776.29 million and de-listed the company from the London Stock Exchange.

 

A third major wrong turn was the investment in Sincere Property Group. In 2019, just as CDL privatised M& C, it also decided to take a 24.1% stake in Sincere for the equivalent of $1.1 billion. During the due diligence phase, CDL decided to raise its stake in Sincere to 51.01%, paying an additional $880 million. Following the pandemic and the imposition of the three red lines, which were basically liquidity ratios for Chinese developers to comply with, CDL wrote off the $1.92 billion it had invested in Sincere.

 

With these three wrong turns, CDL&rsquo s gearing shot up, and by the end of 2024, it was well over 1 times, causing CDL to report two gearing ratios: one based on historical cost and the second based on fair value.

 

What of IOIPG?

 

Interestingly, IOIPG&rsquo s net gearing as at end-2024 stood at 0.7 times and its interest cover was just 1.07 times. However, IOIPG&rsquo s management has articulated that it is willing to study the feasibility of a REIT once IOI Central Boulevard Towers has stabilised. A mixed S-REIT comprising commercial and hospitality sectors at South Beach, coupled with the Grade-A office of IOI Central Boulevard, makes sense, market watchers reckon. &ldquo Why couldn&rsquo t CDL have REITed South Beach along with Republic Plaza?&rdquo wonders a market watcher.

 

IOIPG says in the press release it will keep &ldquo its options open for any opportunities by leveraging and optimising its position in creating additional value for its stakeholders&rdquo .

 

As for CDL, JP Morgan says: &ldquo While the sale is a positive development, given prior false dawns, the market will also want to see CDL being disciplined on the acquisition front, not just in non-core sales. This was best reflected in 2024, when CDL announced plans to sell $1 billion of non-core assets, of which only $600 million was achieved last year and with various acquisitions, resulted in net gearing (including the fair value on investment properties) rising to 0.69 times by 4Q2024 from 0.61 times in 4Q2023.&rdquo

 

JP Morgan retains a neutral rating on CDL with a price target of $4.85. UOB Kay Hian also retains a neutral rating on the stock, adding: &ldquo Further capital recycling efforts to de-leverage and a more consistent execution of this strategy are needed to re-rate the stock.&rdquo UOB Kay Hian has a target of $4.60 for CDL.

The property arm of IOI Corporation is already a major player in Singapore&rsquo s real estate space, with residential, hotel and office assets

 

[SINGAPORE] Property developer IOI Properties Group (IOIPG) is poised to grow its Singapore presence with the acquisition of the remaining 50.1 per cent stake in the South Beach development that it does not already own, from its joint venture partner City Developments (CDL). 

 

Upon the S$834.2 million acquisition, slated to complete by Q3 2025, IOIPG will gain full ownership of South Beach&rsquo s commercial components, the group said in a Wednesday (Jun 4) bourse filing. This includes the 34-storey South Beach Tower housing Grade-A office units, the 634-room JW Marriott Hotel Singapore South Beach, and the restaurants and cafes in the complex. 

 

The mixed-use integrated development along Beach Road is now owned by both parties via an entity called Scottsdale Properties, which owns South Beach Consortium, which in turn owns South Beach.

 

The acquisition, one of CDL&rsquo s largest divestments, will expand IOIPG&rsquo s Singapore investment property portfolio &ndash even as it is already a major player in the city-state&rsquo s real estate space. 

 

IOIPG has developed projects such as the IOI Central Boulevard Towers in the Marina Bay area. Nearby, in the pipeline is W Singapore - Marina View, a 350-room hotel slated to open in late 2028. Branded apartments W Residences - Marina View will be part of the 51-storey mixed-used development.

 

Lee Yeow Seng, IOI&rsquo s group chief executive officer, said: &ldquo This acquisition will elevate the group&rsquo s profile as a major landlord of premium office space and a prominent player in the hospitality industry within the Republic.&rdquo

 

The deal will bring the total net lettable area (NLA) of IOI&rsquo s Singapore investment assets to 1.8 million square feet (sq ft) and the total NLA of its property investment segment across Malaysia, Singapore and Xiamen, China, to 9.82 million sq ft. 

 

IOI&rsquo s total assets across investment properties, hotel assets and property development assets stood at RM47.93 billion as of Mar, 31, 2025.

 

News of the South Beach sale comes on the heels of CDL&rsquo s announcement of its plans to divest assets in a bid to cut debt.

 

What is IOI Group?

The group is a Malaysian conglomerate that started off as a palm oil business before venturing into property. 

 

Its palm oil business is parked under IOI Corporation, one of Malaysia&rsquo s largest palm oil companies its property business is handled by IOIPG, the property arm of IOI Corporation. 

 

One of Malaysia&rsquo s largest property entities by market capitalisation, IOIPG was carved out of IOI Corporation, and separately listed on the Malaysian stock exchange in January 2014. 

 

IOIPG has three core business segments: Property development, property investments and hospitality and leisure in the markets of Malaysia, Singapore and Xiamen, China. 

 

It has four-decades of experience in property development across residential, commercial and industrial offerings. 

 

IOI Corporation is among the 30 largest companies listed on the main board of the Malaysian stock exchange, and a constituent company on the bourse&rsquo s benchmark index, the FTSE Bursa Malaysia KLCI. 

 

Who is IOI&rsquo s founder, and who runs the business now?

The late Malaysian magnate Lee Shin Cheng, who died in 2019, founded IOI Corporation and its property arm IOIPG, which is also listed on Bursa Malaysia.

 

Born in 1939 in Kuala Selangor in the Malaysian state of Selangor, he was raised on a poor rubber plantation. He dropped out of school at 11 and started selling ice cream to support his family. 

 

He began working as a supervisor in a rubber estate at the age of 17, and worked his way up to becoming an estate manager before he turned 30. 

 

In 1975, he acquired a property company and over the years, developed the business.

 

In 1982, he acquired Industrial Oxygen Incorporated. Renamed as IOI Corporation in 1995, it ventured into the palm oil business. 

 

After his death, his sons inherited stakes in IOI Group. 

 

Lee Yeow Chor is group managing director and chief executive of IOI Corporation, and Lee Yeow Seng is the group CEO of IOIPG. 

 

What other Singapore assets does IOIPG own?

Beyond the integrated developments, IOIPG has a portfolio of high-end residential properties in Singapore. These include Seascape and Cape Royale, condominium developments in Sentosa Cove that were developed in partnership with Ho Bee Land. 

 

IOIPG also developed The Trilinq, a residential development in Clementi and Cityscape@Farrer Park.

 

Last November, group CEO of IOIPG, Lee Yeow Seng, acquired Shenton House along Singapore&rsquo s Shenton Way, in his personal capacity, for S$538 million.