CITY DEVELOPMENTS LIMITED (SGX:C09)
City Developments - Near-term Malaise, Planning For The Future
- Group hotel RevPAR -27% y-o-y in 1Q20.
- Soft residential sales; stepping up digital marketing efforts.
- Strong balance sheet to fund growth opportunities.
Soft operating metrics as expected, especially for hospitality
- City Developments (SGX:C09) recently provided operational updates for its 1Q20.
- As expected, its hospitality and retail segments faced the strongest headwinds. Group hotel RevPAR fell 27.0% y-o-y (occupancy -17.9 ppt and Average Room Rate - 2.0%), while close to 30% of its global hospitality portfolio are closed due to government-mandated shutdowns.
- For retail, ~80% of its tenants in Singapore are closed, while City Developments has also announced > S$23m of rental rebates (including property tax rebates to be passed on) to its retail and commercial tenants. Majority of its retail tenants will receive ~2.8 months of gross rental rebates. However, its office and retail portfolio still saw positive rental reversions in 1Q20.
Singapore residential sales value down 46.1% y-o-y; weak Apr industry data points
- City Developments sold 185 residential units in Singapore in 1Q20, representing an increase of 6.9% y-o-y. However, sales value of these transactions dipped 46.1% to S$278.1m, which was partly due to product mix as more mass and mid-market projects were sold in 1Q20. It plans to launch its Sims Drive project in 2H20 (566 units; delayed from 1H20), while the launch timeline for its Irwell Bank Road and Liang Court redevelopment projects have not been decided due to the Covid-19 situation.
- The residential sector will also be affected by delays in construction work and supply chain disruption. According to URA statistics, new home sales volume came in at 277 units (excluding ECs) for the month of Apr. This was a decline of 62.3% y-o-y and 58.0% m-o-m, which does not come as a surprise to us given the circuit breaker period which commenced on 7 Apr.
- City Developments highlighted that it has stepped up its digital marketing efforts via virtual showflat tours and online sales presentations to potential buyers. It saw an increase of over 30% in online traffic views for its launched projects in Apr.
Balance sheet remains healthy
- In terms of financial position, City Developments’s balance sheet remains healthy, with a net gearing ratio of 44% (including revaluation surplus). It has a high interest coverage ratio of 6.2x, cash reserves of S$3.3b and S$2.3b of undrawn and committed credit facilities, versus S$1.8b of debt maturing in FY20.
- Given its robust balance sheet, City Developments had proposed to acquire a 51.01% stake in Sincere Property Group, a private Chinese real estate developer for RMB4.39b (~S$0.88b). This would expand its footprint in China, which it remains upbeat on over the longer-term. The agreed valuation translates into a P/NAV of 0.53x (based on audited FY19 NAV) and the transaction is expected to complete in 2Q20.
- See City Developments Share Price; City Developments Target Price; City Developments Analyst Reports; City Developments Dividend History; City Developments Announcements; City Developments Latest News.
- We maintain our fair value estimate of S$12.01 for City Developments, pegged to a 35% discount to our RNAV forecast.
OCBC Research Team
OCBC Investment Research
|
https://www.iocbc.com/
2020-05-18
SGX Stock
Analyst Report
12.010
SAME
12.010
