CITY DEVELOPMENTS LIMITED
C09.SI
City Developments (CIT SP) - Monetising Office Assets to Unlock Value
PPS 2.0: SGD1.1b worth of office assets
- CDL has established its second Profit Participation Securities (PPS) with three office assets.
- We are positive as this would allow CDL to monetise SGD1.1b worth of office assets, conservatively held at cost.
- We expect gains of c.25 SGD cts per share and raise our RNAV by 2% to SGD12.52.
- This lifts our TP to SGD10.64, still at a 15% discount to RNAV.
- Maintain BUY.
Retaining 40% for future gains
- CDL will hold 40% of the PPS and Alpha Investment Partners, Keppel Land’s fund-management arm, 60%. The partners will contribute SGD133.3m and SGD200.2m respectively and receive fixed coupons of 5% pa for five years.
- Including the fixed payout, Alpha will receive preferred returns for an IRR of 12.6% pa. CDL will receive the balance cashflow until its initial capital is repaid.
- Subsequent upside will be shared 60:40 by CDL and Alpha. This means that CDL will continue to benefit from future gains after delivering the promised returns to Alpha.
Aggregate valuation above our estimates
- The three office assets in the deal - Central Mall (office tower) (SGD218m), 7 & 9 Tampines Grande (SGD366m) and Manulife Centre (SGD487.5m) - have been valued at SGD1,071.5m. Occupancy is 98% and they will continue to be managed by CDL.
Raise RNAV to SGD12.52, discount could narrow
- We lift our FY15 EPS by 44% to factor in expected gains from this. Proceeds will free up capital for future deployment and lower CDL’s leverage to 0.21x from 0.29x as of Sep 2015.
- As the transacted value is 17%/32% higher than our FY15-16 estimates, we lift our RNAV by 2% to SGD12.52.
- We believe the stock’s 42% discount to RNAV could narrow from this positive development.
Derrick Heng CFA
Maybank Kim Eng
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http://www.maybank-ke.com.sg/
2015-12-16
Maybank Kim Eng
SGX Stock
Analyst Report
10.64
Up
10.40
