City Developments - Room For Acquisition-Led Growth
- Our recent site visit to the newly completed South Beach Project reinforces our positive view on CDL’s project management capabilities. Post policy relaxation, sales momentum has picked up across its Singapore residential projects, which should lower inventory risk.
- Additionally, its strong balance sheet offers healthy headroom (>SGD 3bn) for acquisitions.
- Despite a share price outperformance, CDL remains our Preferred Pick for its asset monetisation ability, nimble capital management and acquisition potential. Maintain BUY with a higher TP of SGD11.30 (from SGD10.50, 11% upside).
Residential sales picked up post recent policy easing.
- City Developments (CDL) saw a healthy take-up of 20 residential units across its Singapore projects over the weekend, after a surprise easing of policy measures (8 Mar).
- A bulk of the sales came from its mass to mid-range projects. This is in line with our view that residential volumes are to see a near-term pick-up as more marginal buyers enter the market.
- Going forward, CDL is expected to launch New Futura and South Beach Residences in the latter half of 2017.
Rebranded JW Marriott ramping up nicely.
- CDL recently hosted an analyst social event at its newly rebranded JW Marriott hotel (634 rooms). We understand that demand has picked up post soft opening (Dec 2016), with current occupancy at 50-60%. The refurbished luxury hotel caters mainly to corporate and high-end leisure travellers, with room rates starting at SGD450/night. About 55% of its customer mix is currently corporate.
- We expect hotel occupancy to rise to the 70% mark post official opening this week, on the back of resilient visitor demand.
South Beach – office, retail fully leased; residential launch likely in 2H17.
- The South Beach integrated redevelopment obtained its final temporary occupancy permit (TOP) in 4Q16. Despite tough market conditions, CDL has managed to fully lease out its office (510,000 sq ft) and retail space at average rentals of ~SGD10psf and SGD13psf respectively, which should boost its recurring income stream.
- CDL is expected to launch the 190 luxury residential units in the South Beach residential project in 2H17, with an expected ASP of >SGD3,000psf. The project is jointly developed by CDL (50.1% stake) and IOI Properties (49.9%).
More room for acquisitions ahead.
- CDL’s net gearing improved substantially to 16% as at FY16 (26% in FY15), giving it a healthy debt headroom of over SGD3bn (assuming comfortable gearing level of 50%).
- In 2017, CDL has so far deployed a total of SGD304m for the acquisition of a 24% equity stake in China’s co-working space operator Distrii, a UK residential site, and a commercial project in Shanghai.
- We expect management to continue this acquisition spree (likely in Singapore, Japan and UK markets), capitalising on current market opportunities.
Maintain BUY, with a higher TP of SGD11.30
- Maintain BUY, with a higher TP of SGD11.30 pegged at 20% discount (previously 25%) to our revised RNAV of SGD14.13 (from SGD14.01).
- We lower our RNAV discount to take into account an earlier-than-expected policy easing, which is likely to boost sales and clear inventory overhang.