City Developments - CGS-CIMB Research 2021-05-19: Mixed Performance In 1Q21

CITY DEVELOPMENTS LIMITED (SGX:C09)

City Developments - Mixed Performance In 1Q21

In its 1Q21 operational update, City Developments (SGX:C09) indicated that while there are signs of improvement in its core business segments, overall business conditions remain challenging with the impact of COVID-19.
City Developments's management reiterated its strategy of enhancing its portfolio through asset enhancements, repositioning and redevelopment initiatives, while looking for growth opportunities via strategic investments and capital recycling initiatives, including in the fund management space.
City Developments's net gearing ratio (after factoring in revaluation surplus from investment properties) ticked up q-o-q to 65% (from 62% in 4Q20), with interest cover of 1.7x. City Developments has cash reserves and available undrawn committed bank facilities of S$5.5bn. Weighted average debt expiry stands at 2.2 years and there are no material concerns over the group’s ability to fulfill its near-term debt obligations.

In the property development segment, Singapore witnessed 72% y-o-y more units sold in 1Q21 to 319 units. The recent launch of Irwell Hill Residences in Apr also saw a 50% take-up rate during the launch weekend.
To replenish its landbank in Singapore, City Developments and its JV partner MCL Land, recently won a ~395k sqft GFA site to be developed into a mixed-use project with 408 apartments. In addition, its projects in Australia had also achieved sales rates of 44-92% to-date.
In Feb 2021, City Developments acquired an effective 55% stake in Shenzhen Longgang Tusincere Tech Park in China from its JV partner Sincere Property Group (Sincere) and two entities of China Ping An. Management indicated that Sincere continues to face liquidity challenges and is working to speed up its collections, asset sales and divestments of non-strategic projects to raise funds.

As at end-1Q21, City Developments’s Singapore office and retail portfolio committed occupancy stood at 91.4% and 92.1%, respectively. It indicated that while office rental reversions remained positive, tenants were cautious on expansionary and relocation plans.
On the retail front, the operating environment continued to face headwinds. Shopper traffic remained muted, even as tenant sales showed a 5% increase over 1Q20’s level. City Developments continued to provide marketing support to tenants in its malls to stimulate consumer spending.
In China, there has been a pick-up in office leasing enquiries and leasing demand has been gradually returning. Hong Leong City Centre office tower in Suzhou is now 85% occupied.

With international travel restrictions still largely in place, City Developments’s hospitality segment reported a 51.7% y-o-y decline in RevPAR in 1Q21, dragged by Europe and US hotels. With the UK expected to end its lockdown in 2Q21, City Developments remains hopeful on this market’s recovery prospects. Management remains focused on cost containment, operational efficiency and digital marketing strategies to drive domestic demand.

We maintain our ADD rating and RNAV-based target price at S$8.97 for City Developments.
See
At the current City Developments share price, the market has largely factored in the impact of the drag from its China investment.
A potential re-rating catalyst is faster-than-expected recovery in the global hospitality sector.
Downside risk: drag from weak macro outlook.

LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2021-05-19

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