City Developments - DBS Research 2016-10-24: PPS 3 for Nouvel 18 at last

City Developments - DBS Vickers 2016-10-24: PPS 3 for Nouvel 18 at last CITY DEVELOPMENTS LIMITED C09.SI

City Developments - PPS 3 for Nouvel 18 at last

  • CDL unlocks the value of Nouvel 18 for S$978m via PPS 3.
  • Priced at 3-11% premium to recent high-end transactions in Orchard; marginally EPS accretive.
  • Key positives: 
    1. removal of QC overhang; 
    2. improved gearing .

What’s New 

  • CDL announced its 3rd Profit Participation Structure (PPS) for Nouvel 18, unlocking its value at S$978m (S$2,785psf); 1.3% above its valuation of S$965.4m. The price implies an approximately 3-11% premium to recent high-end transactions in the Orchard road vicinity – Cairnhill Nine (S$2,500-2,700 psf), Twin Peaks (S$2,500 psf onwards) and the recently launched Gramercy Park (S$2,600 psf). In July 2016, CDL acquired Wing Tai’s 50% stake for S$411m (S$2,340 psf).
  • CDL will recognise a S$27m gain in 4Q2016 following the completion of the transaction. It is marginally EPS accretive by 2%.
  • CDL has achieved over S$3.5bn in FUM (funds under management), on track to meet its target of S$5bn within five years. Potential investment properties for future PPS include South Beach, industrial and retail assets. Apart from building its FUM via PPS, management plans to build its recurring income portfolio by acquiring investment properties and believes that UK and Japan still look attractive.
  • Following the PPS, we believe that CDL would be able to 
    1. remove overhang of QC charges (due in November 2016; estimated at S$38m) on Nouvel 18; 
    2. improve its net gearing from 27% to 19%; and 
    3. lock in some gains from the development for an extended time. 
  • We maintain our BUY rating on CDL with a TP of S$9.90.

Rachel TAN DBS Vickers | Derek TAN DBS Vickers | http://www.dbsvickers.com/ 2016-10-24
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 9.90 Same 9.900