While the COVID-19 pandemic has adversely impacted economies around the world and given rise to global uncertainty, City Developments Limited (CDL) saw an opportunity. An earlier deal with Sincere Property Group in May 2019 was not completed due to a variety of factors, and CDL negotiated new terms for its investment into the Chinese developer, which are significantly improved over the original investment terms announced last year. The new deal is expected to be completed by Q2 2020.

On 15 April 2020, CDL entered into a definitive agreement to acquire a 51.01% joint controlling interest in Sincere Property for an initial investment of RMB 4.39 billion (approximately S$0.88 billion). Upon completion of the transaction, CDL will hold a joint controlling interest in Sincere Property via an offshore investment vehicle, making CDL the single largest shareholder of Sincere Property.

As part of the transaction, CDL will also have a call option to purchase an additional 9% effective interest in Sincere Property for RMB 0.77 billion (approximately S$0.16 billion) at the same entry valuation, which would allow the Group to have sole control and a 60.1% stake in one of China’s top 100 real estate developers. The call option will be exercisable at CDL’s discretion during a six-month period which will only commence upon either the expiry of 18 months from the completion of this transaction or 1 July 2022, whichever is later.

The new deal was based on an attractive entry valuation of RMB 8.6 billion, which is almost 50% of Sincere Property’s FY 2019 audited net asset value of RMB 16.1 billion.

A Strategic Alliance and Win-Win Partnership

Following the completion of the transaction and prior to the potential exercise of the call option, CDL will assume joint control of Sincere Property together with Mr Wu Xu. As the Chairman and Founder of Sincere Property for over two decades as well as the second largest shareholder after the transaction is completed, Mr Wu has a shared alignment with CDL to drive the growth and success of Sincere Property. CDL and Mr Wu will focus on agreed upon priorities such as capital management and portfolio recalibration initiatives to strengthen Sincere Property’s financial position and fundamentals.

CDL Group Chief Executive Officer Mr Sherman Kwek said, “Our strategic partnership with Sincere Property marks a major milestone in CDL’s history and represents a game-changing investment for us. Their high quality and sizeable asset portfolio is a synergistic fit and complements our core businesses of property development, asset management and hospitality.”

Broadened Presence and an Expanded Portfolio in China

Mr Kwek added, “Despite our relatively late entry into China’s real estate market only a decade ago, this investment will immediately accelerate CDL’s geographical presence from three to 18 cities in China. In addition, it will strengthen CDL’s expertise in familiar segments like residential, office, retail and hospitality while broadening our capabilities into new asset classes like business parks. While there are challenges and uncertainties caused by the COVID-19 pandemic, China remains one of our key overseas markets and we hold a positive view of the long-term growth and market outlook there. As the most populous nation in the world, the opportunities and potential in China are limitless. This deal will transform the Group’s scale and firmly establish CDL as a major player in China’s property sector.”

The investment into Sincere Property will provide CDL with the following in China:

• an expanded geographical presence of 18 cities across five regions
• broadened capabilities ranging across residential, office, retail, business parks, serviced residence and hotels
• an increase in portfolio allocation for China from 13% (as at 31 December 2019) to 17% upon completion of the transaction
• a pipeline of 64 development projects to achieve scale and attractive returns
• a portfolio of 27 investment properties
• a landbank of 9.2 million square metres of gross floor area with greater than 96% in China’s Tier 1 and 2 cities
• access to Sincere Property’s talent pool of over 2,000 dedicated professionals

Sincere Property’s Chairman and Founder Mr Wu Xu said, “Since our founding in 1999, Sincere Property has built up a strong presence and reputation in China, with a diversified portfolio comprising residential, commercial, retail, business parks, serviced residence and hotels. CDL’s investment will strengthen and expedite Sincere Property’s growth as we work closely to prioritise our core business segments. We will also continue to seek new opportunities to increase our land bank and pipeline of properties to achieve stronger sales. We look forward to learning from CDL’s international experience and institutional best practices to professionalise our company further. Within Sincere Property’s current portfolio, there are many opportunities to unlock value, including fund management initiatives. The partnership with CDL marks a truly transformational phase for Sincere Property in this new decade.”

As at 31 December 2019, CDL Group’s global asset portfolio amounts to S$23.2 billion, of which China accounts for 13%. The Group’s existing China portfolio includes residences, office buildings, hotels, serviced apartments and retail malls.

For more information, please click here for CDL’s announcement.