City Developments acquires London commercial building for S$328 million

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City Developments said on Friday that it acquired a Grade-A commercial building, Aldgate House, in London for 183 million British pounds, or around S$328 million, as part of its strategy to increase recurring income from gateway cities.

“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,” Frank Khoo, City Developments chief investment officer, said in the statement on Friday. “CDL will continue to seek opportunities in the U.K. to further enhance our recurring income streams.”

Aldgate House has a net lettable area of around 211,000 square feet, which includes office, retail and ancillary spaces over two basements, ground, mezzanine and eight upper floors, City Developments said in a filing to SGX before the market open on Friday. The location is in the Aldgate district, near Aldgate High Street, Middlesex Street and St Botolph Street, with around seven Underground station nearby, it said.

“Over 45 percent of the office rentals in the building are below the market rents in the Aldgate area and there is strong potential for positive rental reversions,” City Developments said.

“There is also potential to undertake AEI (asset enhancement initiatives) to add value to this property. We can refurbish office spaces to
increase the rental and convert unused areas to provide additional facilities such as a restaurant. Planning consent has also been obtained for the creation of additional massing at the basement for a commercial gym,” Khoo added.

City Developments noted the weighted average unexpired lease term is 6.2 years to lease breaks and 7.9 years to lease expiries, which it called “attractive” as it offered stable recurring income.

The building has an 88 percent occupancy rate, with “well-diversified” tenant mix and a passing yield of around 5 percent, it said.

“Overall, the Central London office market outlook is positive as rental growth is expected to continue into 2021, bolstered by the heightened demand and tightening of both existing office stock and new supply. Investment sales transactions in the City of London area are also recording their highest level of activity since end 2015 due to London’s status as a global financial hub and favourable exchange rates,” City Developments said.

“With the current market trend and sentiments, Aldgate House is well-positioned to capitalise on an increasingly favourable office landlord market,” it added.

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