EUR 850.00 For Business Accounts Only

Morningstar | CDL Reports Good 3Q Result; Acquisitions Add to Recurring Income

Despite tougher conditions after the government acted decisively in tightening measures in July this year, no-moat City Development, or CDL, reported a good third-quarter result. The result does not alter our view on CDL as the developer continues to expand its portfolio of investment properties and seek to increase its proportion of recurring income, in addition to its hotel operation Millennium and Copthorne, or M&C. The undisclosed SGD 300 million acquisition flagged at the second result turned out to be Aldgate House in London commercial property for SGD 328 million. Another London commercial property 125 Old Broad Street was added in October for SGD 687 million. We expect further acquisitions as the developer targets recurring income to make up 65% of group earnings, from 50% at the end of fiscal 2017. M&C had a mixed third quarter with some hotel closures weighing on revenue. On a like-for-like basis, revenue per available room was largely flat while higher operating expense resulted in lower operating profit. Our fair value on CDL is unchanged and we continue to believe the downside to the residential property in Singapore is factored into current share price.

Residential real estate sales in Singapore continued at a reasonable pace. The Jovell was launched in September during the quarter with 20% of launched units sold while the November launch of Whistler Grand saw 160 units of 240 launched units sold. Previously launched projects New Futura and The Tapestry also posted additional sales during the quarter. Third-quarter residential real estate price growth in Singapore slowed to 0.5% on last quarter. This compared with 3.4% and 3.9% in the second and first quarter, respectively. With residential prices slowing, lower sales are expected going forward. This was reflected in comments by Singapore banks at the third quarter result as they noted mortgages growth is slowing more than their expectation. Our earlier conversation with City Development noted that heavy discounts to shed inventory is unlikely. The developer maintains a strong capital position and will employ leasing strategy some unsold units. This was the case at Cliveden at Grange and possibly at South Beach. Four launches are expected in 2019.