City Developments Limited (CDL) announced on Friday morning that it has acquired a prime freehold Grade A commercial building in London for £183 million (S$328 million). The project, Aldgate House, is located in the district of Aldgate, right beside Aldgate Underground Station and with six other stations within a five-minute walk.
CDL said the acquisition was undertaken “as part of its focus on expanding recurring income in global gateway cities”. Aldgate House has a net lettable area (NLA) of 211,000 square feet including Grade A office, retail and ancillary spaces over two basements, ground, mezzanine and eight upper floors. It has an occupancy rate of 88 per cent and is achieving a passing yield of about 5 per cent.
Noting that over 45 per cent of the office rentals in the building are below market rents in the Aldgate area, CDL said “there is strong potential for positive rental reversions”. It added that the building’s overall weighted-average unexpired lease term of 6.2 years (to lease breaks) and 7.9 years (to lease expiries) “is attractive as this will provide stable recurring income to CDL”.
CDL said Central London’s office market outlook is positive as rental growth is expected to continue into 2021, bolstered by heightened demand and tightening of both existing office stock and new supply. Investment sales in the City of London area are also recording their highest level of activity since end-2015.
Said CDL group chief investment officer Frank Khoo: “A key focus for CDL is to grow our recurring income significantly over the next 10 years through acquisitions and organic growth which will help to mitigate the volatility of development projects. This acquisition will enhance CDL’s recurring income portfolio.
“We see tremendous potential in this prime commercial building and we continue to believe that London will remain as a global financial hub. The vibrant Aldgate district is home to major occupiers from a diverse sector base including financial, fintech, insurance, legal, cultural and creative companies. It is also emerging as the heart of ‘Digital London’ and the presence of healthtech companies is expected to increase with plans to develop a world-class life sciences research facility in the vicinity.”
Mr Khoo also noted potential to undertake asset enhancement to add value to the property, for instance by refurbishing office spaces to increase the rental and converting unused areas into additional facilities such as a restaurant. Planning consent has been obtained for the creation of additional massing at the basement for a commercial gym.
“CDL will continue to seek opportunities in the UK to further enhance our recurring income streams,” he said.
This is CDL’s second recurring income asset in the United Kingdom, after the prime freehold Development House office building acquired in 2016. The 28,000 sq ft property at Leonard Street, Shoreditch district, remains fully leased with vacant possession expected from Q3 2018. The site has obtained planning approval to be redeveloped into a nine-storey building consisting of over 72,000 sq ft of NLA.
The acquisition of Aldgate House took place via the purchase of all units in The Aldgate House Unit Trust and the subscription of the entire issued share capital in Aldgate House General Partner Limited, both of which together hold 100 per cent interest in The Aldgate House Limited Partnership, which is the sole beneficial owner of the property and owns the beneficial title to it. The acquisition was funded via internal resources and is not expected to have any material impact on the net tangible assets or earnings per share of CDL Group for the financial year ending Dec 31, 2018.