Full house at CDL’s AGM following boardroom clash

Before the AGM began, chairman Kwek repeated his March 12 statement that the board had "agreed to put aside their differences for the greater good of CDL and its stakeholders". He added that all the current directors, including those at the centre of the dispute - Jennifer Duong Young and Wong Su Yen - would remain on the CDL board.

FY2024 a 'very difficult year'

In his opening remarks on the group's financial performance, Sherman noted that FY2024 was "a very difficult year" owing to construction delays, higher costs and high interest rates. The latter led to higher interest expenses, which rose by 21% y-o-y to $589 million in FY2024 and eroded the group's profit.

CDL also faced construction delays, and the younger Kwek said that construction costs have increased significantly compared to 2019, rising by 40% to 60%. Sherman says the rising costs "put a lot of pressure" on CDL's existing projects, owing to its revenue model of recognising profits based on the percentage of a project's completion. "We do have a lot of unrecognised sales value that we've done; most of our projects really sold very well, but it will take us a bit more time to recognise some of that."

See also: Generational shift at City Developments

Building recurring income

Due to the "lumpy" nature of the development business, Sherman said the group is looking to build its recurring income portfolio, which includes rental housing, private rental sector (PRS) properties - also known as multi-family rental properties - as well as student accommodation.

Sherman said the living sector best fits CDL's "skill sets" in development, asset management and hospitality. Fund management was also flagged as a means to obtaining recurring income.

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Sherman added that some developers in Singapore have done a "really good job" with their fund management business. Despite CDL's "slower start", he said the group could sell some assets into funds where CDL will "have a small stake", which will provide "good recurring income".

According to CDL's latest annual report, the group owns a "sizeable" UK commercial and purpose-built student accommodation (PBSA) portfolio, as well as Japan PRS portfolios across Tokyo, Osaka and Yokohama.

These generate "stable" recurring income, said CDL. "Amid a challenging market environment marked by volatility and geopolitical risks, the group remains committed to recycling these balance sheet assets for organic growth and scaling up its fund management platform, both via public and private platforms."

UK REIT reprise?

Sherman also said CDL's scuppered plans to list its UK commercial assets via a Singapore REIT are back on the table.

At the group's 1HFY2020 results briefing, the younger Kwek had said CDL was aiming to list a Singapore REIT for its UK commercial assets in 1Q2021. But CDL shelved these plans in 2022, citing a challenging market and an "unprecedented interest rate hike", according to CDL's financial statements that year.

"Had it occurred, that would have added over $3 billion of AUM to our fund management expertise," said Sherman at the AGM. "So that's a bit of a pity, but we only had two buildings then... But now that we have three buildings, I think when conditions are right, it's something we would like to explore again."

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CDL had acquired Aldgate House from a joint venture of Hermes Investment Management and the Canada Pension Plan Investment Board for GBP183 million in September 2018. The following month, CDL acquired 125 Old Broad Street from Blackstone for GBP385 million. CDL acquired a third UK commercial asset, St Katharine Docks in central London, for GBP395 million in March 2023.

Divestments to reduce gearing

With CDL paying close to $600 million in interest costs, Sherman is keen on capital recycling initiatives to reduce this burden.

Another benefit is reducing the group's gearing, which stood at 117% in FY2024. CDL's net gearing, which includes fair value on investment properties, stood at 69% for the same period. In FY2023, both figures stood at 103% and 61%, respectively.

The group CEO said at least $600 million worth of assets will be divested in FY2025, adding that a $1 billion divestment translates to a "very substantial" 6.5 percentage point drop in gearing.

The latest target aligns with the value of assets sold in 2024, although CDL fell short of its previous $1 billion target announced at its FY2023 results. This was due to "various factors" that "hindered" the group's ability to conduct divestments successfully, said Sherman.

The group CEO said proceeds can be deployed into new acquisitions, share buybacks or dividends. At the same time, he said CDL should not sell assets for the sake of divestment targets and end up leaving money on the table. Instead, the group will focus on driving its core portfolio and trimming assets that are unproductive, loss-making or non-core.

Noting that its assets sit on its balance sheet at book cost, Sherman highlights that the group's portfolio is "sizeable" if everything is recorded at fair value. He adds that the group's UK portfolio is "very resilient" with trophy properties and that it is primed to be included in a future platform, whether private or public.

Share buybacks

CDL is also not ruling out resuming share buybacks, given that its shares are trading at a 70% discount, said Sherman.

As at end-2024, CDL's NAV stood at $10.17 per share while its RNAV stood at $17.57 per share, or $19.68 per share with all valuation surpluses.

CDL's shares are down some 16% over the past year. Sherman attributed this to several factors, including CDL's omission from MSCI's Global Standard Indexes in May 2024 and the tussle earlier this year.

At CDL's FY2023 results briefing in February 2024, Sherman shared that the group had mulled over share buybacks "many times" and had set aside a "fairly sizeable quantum" to do so.

At the time, the younger Kwek said that the purpose of the buyback is not to push up its share price but that "investing in your shares, which are deeply undervalued, is as good an investment as any other".

In March 2024, the group initiated a share buyback programme for its ordinary shares through open-market purchases, as it noted that its shares were trading significantly below their intrinsic value, despite having "strong fundamentals".

Days after, the group stepped up its share buybacks, spending nearly $13 million over three trading days. Yet, CDL stopped three months later. It last bought back its shares from the market in June 2024.

Of doctors and snakes

Despite a seemingly united front put by CDL's board, non-executive director Philip Yeo spoke out against directors Philip Lee, Daniel Desbaillets and Wong Ai Ai for "pushing the agenda" to appoint Wong and Young without the board's unanimous approval.

Yeo, a former top civil servant, lashed out: "It must be unanimous; it must be [a] consensus. It should not be... disregarding the chairman."

Expanding on his point, Yeo - who was appointed in May 2009 - added: "There's no company I have been involved [in], overseas and locally, where directors can overthrow... in a coup against [the] chairman. All directors are appointed unanimously. It should not be a small group pushing for this."

Yeo's fiery retort, which was met with applause, corroborates Leng Beng's statement from Feb 26, a day after he issued court papers against his son and board members of his faction.

The elder Kwek had been backed by Yeo, nomination committee chairman Chong Yoon Chou, and independent non-executive director Colin Ong, before father and son stopped legal action a fortnight later, on March 12.

Chong, who was seated next to Yeo at the AGM, acknowledged that the proposed appointment of the two directors "was handled in a rushed manner" and came during the Lunar New Year period. Chong added that he "was given one week" to consider the board appointments, without explaining the deadline, and his father had taken ill in Kuala Lumpur (KL) a day before he had been scheduled to interview both candidates.

Young, one of the two newly-appointed directors, said she had been asked to meet the nomination committee and the board "on separate occasions". Over Zoom video calls, she first met two nomination committee members, then two board members, but Chong "had to be called away to KL", said Young.

While CDL's corporate governance report admitted that the two new directors were voted in "without the usual process of prior review and recommendation", the board defended the actions as "necessary and appropriate", claiming there were "governance concerns in relation to the role and involvement" of an adviser at CDL's hotel subsidiary Millennium & Copthorne: Catherine Wu.

Wong, the other newly appointed board director, faced more criticism for her involvement in the saga as the former chairperson of the Singapore Institute of Directors. Between 2020 and 2023, Wong led the "apex organisation for corporate governance in Singapore", as described on her LinkedIn profile.

Wong questioned "process versus principle, or form versus substance", launching into an analogy of a sick child who had been bitten by a venomous snake and needed urgent medical attention. "The attending doctor has to make a decision: Do I do this procedure on this child because the venom is going through the child's body? Or do I wait until I can find the parent who can sign off on this because that's [the] procedure?" she added, alluding to Sherman's plan to remove Wu from her post.

However, the shareholder expressed scepticism over Wong's explanation. "She draws the analogy of a child needing immediate medical attention, but she is the child that needs to be attended to... You're not the attending physician. The attending physician, in your analogy, is really the NC [nomination committee], right? You are the child who has been bitten by the snake."

All five of CDL's independent directors who were up for re-election were reappointed on April 23. All resolutions were passed with approvals in the high 90s.

Read more about what happened at CDL's 62nd AGM:

• CDL 'would like to explore' UK REIT IPO again: CEO Sherman Kwek
• CDL to divest assets worth at least $600 mil to lower 'very high' gearing: CEO Sherman Kwek
• 'Opportune time' for CDL to relook at share buybacks after price at '70% discount to true value': CEO Sherman Kwek
• Of doctors and snakes: Sparks fly at CDL AGM as board, shareholders cross-examine family feud

See also:

• CDL says board changes deviated from norms (April 8)
• CDL directors put stop to legal action, executive chairman Kwek Leng Beng and son Sherman Kwek to retain posts (March 12)
• SIAS asks CDL to clarify Dr Catherine Wu's role at M&C, process of board appointments, and shareholder safeguards (March 6)
• Dr Catherine Wu resigns; CDL CEO can 'no longer' make corp governance allegations and justify board coup: Kwek Leng Beng (March 4)
• CDL loses biggest developer spot to UOL as stock slides (March 3)
• CDL shares down more than 5% upon trading resumption (March 3)
• Urgency of court application stems from disruption of CDL's corporate structure; Phillip Yeo sees saga as distraction (Feb 28)
• Generational shift at City Developments (Feb 27)
• Primary reason behind CDL's dispute is related to M&C board advisor Dr Catherine Wu, says Sherman Kwek (Feb 27)
• CDL board fight cools with undertaking from two new IDs (Feb 26)
• Father and son battle it out in court for control for CDL (Feb 26)
• Sherman Kwek to remain as group CEO of CDL; finds episode 'incredibly disappointing' (Feb 26)
• CDL calls for trading halt, cancels FY2024 results briefing (Feb 26)
• City Developments' FY2024 patmi falls 36.6% as gearing rises to 117% (Feb 26)
• CDL divests assets worth more than $600 million in 2024 (Jan 16)