City Developments - DBS Research 2022-08-12: Turning Into A Record Year

City Developments - Turning Into A Record Year

  • City Developments (SGX:C09) delivered stellar 1H22 results, recording a PATMI of S$1.1b, reversing from a net loss of S$0.03b in 1H21. The strong results were mainly due to gains recognized from the
    1. divestment of Millennium Hilton Seoul and its adjoining land site which was completed in Feb22 for gains of KRW1.1t (S$1.25b), and
    2. total gains of S$492.4m (including negative goodwill) on the deconsolidation of CDL Hospitality Trusts (SGX:J85) from the Group following the distribution in specie of CDL Hospitality Trusts in May22.
  • Excluding the divestment gains, 1H22 PATMI was S$110m in the black vs net loss of S$32m in 1H21. 1H22 EBITDA grew 19% y-o-y to S$323m
  • The strong rebound was led by a strong turnaround in hospitality segment, reversing a net loss of S$143m in 1H21 to PBT of S$15m in 1H22. PBT from property development fell 12% y-o-y to S$104m due to the absence of negative goodwill recognized in 1H21. Excluding the negative goodwill, 1H22 PBT would have recorded a growth of S$21m.
  • City Developments's net gearing improved 16 ppts to 83% vs 99% in FY21 (on fair value, gearing improved to 52% from 61% in FY21), while average cost of debt increased 0.2ppts to 1.9% vs 1.7% in FY21.
  • City Developments declared a surprise S$0.12 interim dividend vs S$0.03 in 1H21 and S$0.06 typically pre-COVID.

Key highlights

Despite recording lower property sales of 712 units (-27% y-o-y), projects launched year-to-date saw strong take up; most projects are more than 80% sold.

  • Piccadilly Grand saw 77% of total units sold on its launch weekend. Sale value per sqft grew 14% y-o-y. Most of the ongoing residential projects are above 80% sold except Haus on Handy (67% sales take up).
  • Launch pipeline of ~2k units with the next launch Copen Grand (Tengah Garden Walk EC, 639 units) targeted for 4Q22. The remaining projects such as Newport Residences (Fuji Xerox site, 246 units), Upper Bukit Timah Road (408 units) and Jalan Tembusu (638 units) are expected to be launched in 1H23.
  • Despite the property measures implemented at the end of last year, management believes the residential market will remain resilient. Management believes that property prices will continue to trend up given higher costs despite slower volumes.

Commercial properties – office recorded strong positive reversions while retail tenant sales are at / above pre-COVID levels.

  • Both office and retail occupancy saw improvements to 93.8% (+3.2ppts h-o-h) and 95.6% (+1.8ppts h-o-h).
  • Republic Plaza recorded positive reversion of 5.6% given the strong Singapore office market. Palais Renaissance and Quayside Isle (W Hotel) recorded above pre-COVID levels tenant sales in 1H22 while City Square Mall’s tenant sales achieved close to pre-COVID levels

Hospitality – strong turnaround with RevPAR up 110% y-o-y, close to 76% of pre-COVID levels; expect stronger recovery when China reopens.

  • Hospitality saw the strongest turnaround with RevPAR across all markets recovering strongly. Europe and US saw RevPAR above pre-COVID levels while Asia saw a more moderated recovery in 1H22. 2Q22 saw a stronger and firmer recovery while all markets recorded positive EBITDA.
  • Management expects hospitality segment to recover to 80% of pre-COVID levels and believes that hospitality segment can see a second boost when China reopens.

Growing Living Sector Portfolio.

  • City Developments continues to build scale in the Living Sector Portfolio to achieve greater economies of scale that could subsequently be placed into a fund (private or public) or potentially divested. Management is open to development projects or completed projects ready for operation.
  • In 2022, City Developments acquired 3 private rental sector (PRS) projects in Japan totalling 271 units, acquired its first PRS site in Southbank, Melbourne (240 units) and its first purpose built student accomodation (PBSA) in the UK (505 beds).

M&C portfolio rebalancing.

  • Management has revealed 4 core strategies to reposition and optimize its M&C portfolio. Management has identified and categorized assets in 4 core strategies – operational efficiency, AEI, redevelopment, and divestment.
  • Assets with redevelopment potential will be repositioned into other usage such as residential, living sector or mixed-used developments
  • Following the deconsolidation of CDL Hospitality Trusts, management aspires to be a more ‘active’ sponsor and will likely engage with CDL Hospitality Trusts for asset recycling opportunities. Aside from CDL Hospitality Trusts, management may streamline its portfolio further with opportunistic asset divestments to third party.

Asset recycling opportunities to drive 2H22 divestment gains and potentially more from its hospitality and commercial properties.

  • The collective sale of Tanglin Shopping Centre and Golden Mile Complex which closed on 22 Feb and 6 May respectively, are expected to be completed by this year.
    • Tanglin Shopping Centre was sold for S$868m. City Developments owns ~34.6% of the share value and 60.2% of the strata area.
    • Golden Mile Complex’s collective sale was priced at S$700m. City Developments owns 6.3% of the total share value and 34.8% of the strata area.
  • Management expects asset recycling opportunities could continue with some potential collective sale and M&C portfolio optimization.

We maintain our BUY rating and target price of S$10.50.

  • We revised our FY22F earnings upwards (by 69%) to factor in the gains from distribution of CDL Hospitality Trusts shares and potential divestment gains from Tanglin Shopping Centre and Golden Mile Complex.
  • Given the surprise interim dividend, the year-end dividend could return to pre-COVID level of 8 cents final dividend, and 6 cents of special final dividend given the active asset recycling and handsome gains expected to be booked from the 2 collective sales – Tanglin Shopping Centre and Golden Mile Complex.

Above is the excerpt from report by DBS Group Research.
Clients of DBS may access the full report in PDF @

Rachel TAN DBS Group Research | Derek TAN DBS Research | 2022-08-12
SGX Stock Analyst Report BUY MAINTAIN BUY 10.500 SAME 10.500

Previous report by DBS Research:
2021-08-14 City Developments - Reposition, Redevelop, Revitalise

Relevant links:
City Developments Analyst Report,
City Developments Target Price,

City Developments Share Price History,
City Developments Announcements,
City Developments Dividends/ Corp Actions,
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