CityDev builds fund manager to accumulate $6.57b assets

It wants a constant income stream with less reliance on capital appreciation.

City Developments Limited (CDL) is aiming to build assets under management (AUM) of $6.57b (US$5b) by developing a fund management business. The development of the fund management platform will be led by former AXA veteran and current CIO Frank Khoo.

DBS Equity Research analyst Rachel Tan said the group intends to accelerate its efforts to develop a fund management business to drive recurring income. It wants to “achieve a more efficient capital structure and offer recycling opportunities for the group to deploy capital more actively. With three PPS already under the fund management platform, the group intends to launch more commingled funds or JV, acquire platforms and manage third-party capital,” she said.

OCBC Investment Research analyst Andy Wong Teck Ching concurred with Tan and added that CDL’s goal is part of its long-term target. It wants to increase “its proportion of recurring EBITDA from 56% (2017) to 65% to reduce the lumpiness of its income streams,” he said.

According to Jefferies Singapore analyst Krishna Guha, the fund will consist of properties under core/core+ and value-add/opportunistic strategies in 60:40 ratio. “Gearing is expected to be c.50% with the group contributing about 20% of the equity. Office and hotels are likely assets. The emphasis will be on performance and may enhance group RoE (2017 5.6%),” she added.

UOB Kay Hian analyst Vikrant Pandey added that the core and core-plus funds target to provide stable and constant income stream with less reliance on capital appreciation. CDL is “looking at assets such as Republic Plaza and 7&9 Tampines Grande. For value-added funds, the focus is on higher risk-return projects, such as through JVs, and club deals initiatives on bigger development projects.”

“Not only will the platform allow CityDev to play on both the listed and unlisted sides of the real estate industry (a total market of US$13.5t), it also creates a stable income stream, greater access to capital and diversifies its customer base to include institutional
Investors,” he said.

CDL is scrambling for more stable income sources as its profits crashed by 23.4% YoY to $186.7m in Q4 2017. Its full-year profit of $538.2m represented a fall of 17.6%, as it did not have its performance boosted by a sizeable contribution from Hong Leong City Center in Suzhou unlike in 2016.