Profit Participating Securities (PPS)

PPS, a New Kind of Deal

It is at times of downturn, when every dollar is harder to come by, that the shrewd businessman and forward thinking businesses really come into their own. When times are good, you don’t have be smart, you just need to do the basics well, and you will be fine. When times are tough however, that is when you really prove your mettle. As proof of that, developers, agents and owners alike are trying ever more clever and inventive ways to move units, improve the market price of their property and unlock potential value from their assets. Here we look at one of those measures – PPS. We examine exactly what it is, and how developers are using it to their advantage.


PPS Deal


What is PPS?  

Profit Participating Securities are hybrid investment instruments, quite often used in private equity or capital market transactions, but very rare when it comes to real estate. Investors receive a fixed pay out based on a pre-determined fixed rate of interest, over a defined number of years, as well as an equity kicker.


Where have PPS been used?

In the first case of its kind in Asia, City Developments Ltd partnered with CIMB Bank Berhad, Labuan Offshore Branch and Blackstone’s Tactical Opportunities Fund in 2014 to raise S$1.5 billion from its properties in Sentosa Cove, namely the Quayside Collection.

Buoyed by that success, they didn’t rest on their laurels and a year later in December 2015 they launched their second PPS platform. This time it was with Alpha Investment Partners Ltd, through Alpha Asia Macro Trends Fund II (AAMTFII), with both parties jointly investing in 3 prime office developments to the tune of around S$1.1 billion. The properties in question were Central Mall (Office Tower), 7 & 9 Tampines Grande and Manulife Centre, with respective values of S$218 million, S$366 million and S$487.5 million.


And the Future?

After raising a reported S$2.6 billion in its two previous PPS schemes, CDL is beginning the process to launch its third, and fourth. The first of these involves three residential developments – once again in Singapore, comprising of a total of 48 units worth an estimated S$350 million. In more detail, the portfolio is made up of 12 units at St Regis Residences, 31 Tanglin Road; 22 units at Cliveden at Grange, 100 Grange Road and 14 units at One Shenton, 1 Shenton Way. The Singapore based property pioneers are reportedly offering co-investors a coupon guaranteeing 3% per annum.

Not only that, if rumours are to be believed CDL are getting ready for a fourth PPS deal, this time involving commercial assets.

The asset market is starting to come under some pressure however, which is not conducive for launching fresh PPS platforms. If this continues, or gets worse, then it is likely that CDL will hold fire and wait for the environment to improve.




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