City Developments - DBS Research 2020-01-02: Well Positioned For The Long Haul

CITY DEVELOPMENTS LIMITED (SGX:C09)

City Developments - Well Positioned For The Long Haul

CITY DEVELOPMENTS (SGX:C09)’s 9M19 net profit fell marginally by 0.5% y-o-y to S$477m largely impacted by impairment losses of S$36.9m for Millennium Hilton New York One UN Plaza and Millennium Hilton Seoul and M&C privatisation costs of S$24mn, mitigated by the divestment gains of assets from PPS2 (Manulife Centre – S$153.9m and 7&9 Tampines Grande – S$43.3m) recognised in 1H19.

Excluding the impairment losses and privatisation costs, 9M19 net profit would have increased 8.9% y-o-y.
3Q19 net profit fell 34% y-o-y to S$115m mainly due to lower contributions from property development (profit before tax (PBT) -32% y-o-y) attributable to the timing of profit recognition for development properties and hotel segment due to impairment losses and privatisation costs (loss before tax (LBT) of S$28m vs PBT of S$37m in 3Q18).
Excluding the impairment losses and privatisation costs, 3Q19 net profit would have declined by 11.4% y-o-y.
See City Developments Share Price; City Developments Target Price; City Developments Analyst Reports; City Developments Dividend History; City Developments Announcements; City Developments Latest News.

9M19 revenue and PBT fell 55% y-o-y and 43% y-o-y respectively mainly due the absence of lump sum recognition in 9M18 including;
1. The Criterion EC upon completion in February 2018,
2. New Futura and Gramercy Park which has completed,
3. overseas projects such as HLCC and Park Court Aoyama.
PBT margins have expanded to 36% vs 28% in 9M18 as a result of lower margins from The Criterion EC. 3Q19 PBT margins expanded marginally to 38% vs 35% in 3Q18.

9M19 revenue was flat y-o-y but PBT fell 98% y-o-y impacted by S$36.9m impairment losses for Millennium Hilton New York One UN Plaza and Millennium Hilton Seoul, M&C privatisation costs of S$24mn and closure of Mayfair hotel for refurbishment in July 2018 which was re-opened on 9 September 2019 (YTD operating loss of S$13m).

9M19 revenue was +25% y-o-y mainly led by new acquisitions of three buildings in 1H18, namely Aldgate House (London), 125 Old Broad Street (London) and Central Mall Office Tower. PBT was S$298m in 9M19 vs S$131m in 9M18 supported by higher divestment gains.

9M19 property sales reached S$2.56bn (+64% increase in sales value), with the group and associates achieving a 44% y-o-y increase in units sold to 1,130 units.
The group launched six projects in 2019 (five 9M19 and one in 4Q with strong pre-sales rates across its projects. Its key projects –
1. Boulevard 88 (83 units sold out of 154 units at S$3,800 psf),
2. Amber Park (188 units out of 592 at S$2,480psf,
3. Haus on Handy (30 units sold out of 188 total units at S$2,870psf),
4. 444 units out of 820 units for Piermont Grand EC at S$1,080psf,
5. 24 out of 30 released of the 156-unit Novel 18 at s$3,450pf where a majority of the units are leased out.
In November, the group launched and sold 232 units out of the 680-unit Sengkang Grand Residences, a joint venture (JV) project, at average selling price of S$1,700psf.
Launch pipeline stood at 1,515 units (accounting for the group’s effective share) with upcoming launches expected in 2020 including the Sims Drive (560 units) site in 1Q20.

In Singapore, City Developments’s office and retail properties remain stable with occupancies at 91.3% and 94.2% respectively (vs 92.1% and 95.1% respectively in 2Q19 vs 91.4% and 95.8% respectively in 1Q19).
Following the completion of the asset enhancement initiative (AEI) at Republic Plaza, rents were >10% higher than pre-AEI rents. City Developments’s management expects positive rental reversions to continue.
As such, City Developments continues to undertake AEI opportunities with the next planned upgrading works at City Industrial Building.

M&C’s revenue per available room (RevPAR) was +4.3% y-o-y in 3Q19 to S$156.8/night mainly on the back of higher rates achieved (+4.1%) while occupancy rate remain stable at 77.3%.
The better performance was mainly driven by its hotels in Asia, especially Singapore (+14.9%) and rest of Asia (+9.2%) while its hotels in Europe (+1.6%) and USA (+1.4%) remained stable.
On a YTD basis , portfolio RevPAR was 1.6% higher y-o-y to S$142.3/night.

PPS3 – soft re-launch of 156-unit Nouvel 18 on 18 July 2019 at average selling price (ASP) of > S$3,450 psf. Sold 15% of total units.
City Developments has successfully obtained its Capital Markets Services (CMS) licence from the Monetary Authority of Singapore (MAS) which paves the way for the company to set up a private fund and/or REIT and accelerate its fund management plans.
Click on view full report button below for complete analysis.

Our Target Price is revised to S$13.00 from S$11.00 previously, based on a lower 18% (30% previously) discount to RNAV, which implies 1.08x 2020F P/NAV at 0.5SD above the historical average. See the breakdown of RNAV in attached report.

Rachel TAN DBS Group Research | Derek TAN DBS Research | https://www.dbsvickers.com/ 2020-01-02

SGX Stock Analyst Report BUY MAINTAIN BUY 13.000 UP 11.000