It was reported in Business Times last week that CITY Developments (CDL) has struck a deal with Alpha Investment Partners, Keppel Land’s property fund management arm, to create a joint office investment platform through its second Profit Participation Securities (PPS) transaction. The investment platform would acquire three of CDL’s prime office assets for S$1.1 billion. Alpha and CDL will co-finance the portfolio in the ratio of 60:40.
This is CDL’s second PPS; in December 2014, CDL also set up a PPS structure to monetise the cash flow from its Quayside Collection assets – comprising hotel, retail and residential assets – in partnership with Blackstone Tactical Opportunities Fund and CIMB. The deal was worth S$1.5 billion.
The assets are:
- Central Mall office tower, divested for S$218 million;
- 7 & 9 Tampines Grande, divested for S$366 million; and
- Manulife Centre, divested for S$487.5 million.
PPS is a fixed-term vehicle, designed to provide both yield and capital gain. Under it, CDL and Alpha will be entitled to a fully secured fixed coupon payout of 5 per cent interest per annum for a period of five years – coming from income produced by the properties, which are 98 per cent occupied.
The eventual intention is to dispose the assets when market conditions are optimal. When this happens, AAMTF II will get its preferred returns of up to an internal rate of return of 12.6 per cent per annum, including the 5 per cent annual coupon already paid. CDL, after getting back its principal, will then take 60 per cent of any further profits on disposal. AAMTF II takes the rest.