“We’ve learnt lessons from the past, from the likes of Enron, the Asian Financial Crisis and the Global Financial Crisis, and we’re more cognisant of operational, legal and financial risk,” she recounts.
Even without the boardroom drama that engulfed CDL at the start of the year, bidding for and clinching a site, whether in an open tender, private treaty, or government land sale (GLS), is exciting enough because of the many moving parts that coalesce into the successful jigsaw that is the winning bid.
Property development is CDL’s bread and butter, as evidenced by its financial report, where property development contributed $152 million to profit before tax of $140 million (due to an unrealised loss in hotels) in 1HFY2025 ended June 30.
“We have a group investment team who does the feasibility review of all land tenders, whether GLS, a collective sale or overseas. They cover both the Singapore portfolio as well as the international portfolio,” describes Yiong.
For GLS tenders, CDL usually works with Woh Hup. “When we identify a land tender we are interested in, we study many aspects of the tender, valuations and financial aspects. For our partners, we look at their track record, including those that we have worked with and their other projects. Our partner complements our strategy very well. They are very good with the PPVC structures,” Yiong says.
Prefabricated Prefinished Volumetric Construction (PPVC) is a construction method in which free-standing 3D modules are completed with internal finishes, fixtures and fittings in an off-site fabrication facility before they are delivered and installed on-site.
According to the Building & Construction Authority (BCA), PPVC can improve productivity by up to 40% in terms of manpower and time savings, depending on project complexity.
See also: City Developments set to end year on a strong note
“PPVC is not cheaper, but it is part of the GLS requirement. It is a greener solution and one of the levers Singapore is using to achieve a lower-carbon society. That’s one good example where the ESG agenda tops costs. Labour is also the other increasing cost,” Yiong observes
“When the team evaluates a land tender, it includes the treasury team looking at the financing assumptions; the marketing team looking at where and what price we’re going to sell it for; and the projects team looking at costings and other aspects downstream. With that, we arrive at a price with a high confidence level,” Yiong describes.
Means of hedging
CDL also adopts an ECI (Early Contractor Involvement) approach, engaging builders early in the design stage to facilitate integration between design and construction. With the ECI, CDL minimises the risk of cost overruns. Early contracts with partners provide relative pricing certainty.
Naturally, CDL builds buffers for its financing and sales velocity assumptions, as well as its tender price estimate.
“Every time we win a land tender, that very evening, we have bankers calling us because they’re very eager to lend, to the extent that we have to regretfully decline some bankers,” Yiong says.
Banks compete to fund projects by big-cap, well-known developers, including CDL, who benefit from the price war to secure funding for GLS and other local projects. Since margins are thin for local projects, banks look to fee-based income from hedging and current account savings accounts (Casa). “Typically for finance, we try to hedge 50% of the interest rate to reduce the volatility of the contract cost and financing costs. You have your alpha if there is a rise in sales price. We try to have a project ready for launch within nine months,” Yiong continues. The sales team works with agents on sales strategy and commissions.
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Developments are able to “turn capital” efficiently within five years. Popular projects such as The Orie, which CDL is developing in partnership with Frasers Property and Sekisui House, can sell out in less than five years.
Forex complications
Overseas projects face the added challenge of forex. In CDL’s 1HFY2025 financial statement, its performance was adversely affected by net forex losses of $63.1 million.
The depreciation of the USD impacted the group due to USD-denominated intercompany loans extended to fund a previous US hotel acquisition and working capital requirements.
CDL’s UK subsidiary had excess funds and made an intercompany loan to CDL’s US subsidiary to fund an earlier hotel acquisition.
Hotel operations in the US were hit by the pandemic and needed a capital injection, Yiong explains. It was a one-off and with the sale of 1250 Lakeside, announced in November, a cash infusion into the US subsidiary is imminent.
There’s also been a forex mismatch in CDL’s UK purchases. CDL acquired the UK properties under different management arrangements from 2014 onwards, when borrowing in SGD was cheaper. Even though the group adopted natural hedging, its revenues are in GBP, and forex translation can erode margins. At any rate, even if the equity is naturally hedged, there is an impact on net asset value (NAV) from forex translation reserves.
Despite natural hedging, interest rate risk still exists when borrowing in GBP. For instance, CDL acquired two investment assets in 2018: 125 Old Broad Street and Aldgate House. They were part of a fund management platform that did not materialise because of the pandemic. CDL had planned to partner with a sovereign wealth fund to list three commercial properties in a UK-based S-REIT.
The interest rate upcycle in 2022–2024 meant that refinancing for these properties was done at higher rates. While rents can be raised, during the pandemic and post-pandemic periods, work-from-home remained a trend, and the return to office in the US and UK was much slower than in Asia Pacific. CDL is still looking for capital partners in a fund management platform and/or a listed REIT if the interest rate cycle is favourable.
In November last year, CDL invested RMB4.56 billion ($846 million) for a 51% stake in a JV with Lianfa Group for a site in Xintiandi, Shanghai. Land acquisition cannot be funded with debt. For the equity portion, CDL used cross-currency swaps to swap SGD to RMB. “That gives us a blended cost of sub-4% so we eliminate the currency risk. The construction loan can be done onshore,” Yiong says.
The cost of debt for developers’ construction loans for developments in tier one cities is low. “Onshore banks are offering us attractive rates for this project,” Yiong reveals.
Separately, in 2021, CDL wrote down its investments in Sincere Property Group, a Chinese developer. The original plan when CDL acquired Sincere was to divest Sincere’s investment properties to focus on residential development. However, the Chinese government introduced the three red lines. Sincere breached two of the three, making divestments challenging. In addition, China slowed down post-Covid.
Capital management
Since the pandemic, analysts have been focused on CDL’s rising net gearing. Following the $1.9 billion in divestments announced this year (as estimated by JP Morgan), gearing is likely to fall to 0.69 times (69%). At one point, CDL’s interest coverage ratio (ICR) fell to 1.2 times as of end-March 2024.
“As a developer with development properties, investment properties, and hotels, funding is at the corporate level across the entire portfolio. Ebitda is generated from all three. Financing cost can also be from any of the three. We don’t have ICR per project for development because it’s lumpy,” Yiong explains. For overseas projects and executive condominiums, profits are recognised upon completion.
Yiong still has to assure stakeholders that CDL’s ebitda can support interest payments. “Every CFO looks at gearing because it is indicative of how robust the capital position is. Our gearing is about 70%. Gearing has risen over the years and in the past, CDL’s gearing was [much lower] in single digits,” she acknowledges.
However, compared to the listed developers, with the exception of UOL Group, CDL’s gearing is not particularly high relative to theirs. Moreover, once the private rental scheme properties and purpose-built student accommodation come onstream and stabilise, gearing is likely to fall. At some point, CDL can access capital partners to co-invest in these assets.
Investors have cheered recent moves within and by CDL, such as the retirement of independent director Philip Yeo, and its continued monetisation programme.
What is Yiong’s wishlist? She has two. “I used to sit on the board of ISCA, and I would like more people to join the accounting profession.”
Yiong’s second wish is for CDL’s share price to improve. “At the end of the day, we are working for the shareholders, and you want to give them good, sustainable returns.”
On that score, this year, Yiong’s second wish has indeed come true. (see sidebar) Operationally, CDL’s pivot to Singapore, along with its ongoing divestment programme, has helped garner the stock better valuations.
