Morningstar | City Development's Investment Properties and Hotel Business Offset Slower Residential Growth
City Developments, or CDL, is a diversified real estate development group based in Singapore. Since the 1990s, the business has expanded from residential development to commercial developments and hotel management. Approximately 45% of the group's earnings come from residential development, and 55% from investment properties and hotel management. The latter generates recurring income for the group. The group is more heavily exposed to Singapore than other listed developers. Revenue and earnings contribution from the city-state averaged 60% of the group during the past five years. The restrictive measures implemented for the Singapore property market have slowed demand for residential properties in recent years, but this has improved from mid-2017. Policy restrictions are likely to stay in place in the near term and will cap any significant increase in residential prices, and will continue to weigh on residential development earnings growth. The developer has returned to the land auction market more aggressively and has secured a number of sites at the end of 2017 and early 2018. Residential development will remain core to the group's business.The group's recurring income is underpinned by its hotel business, Millennium and Copthorne, or M&C, and investment property portfolio. The former has a global portfolio of hotels, adding geographic diversity and more stable earnings relative to developments. Hotel revenue is largely derived from Asia, the U.S. and Europe. CDL holds a majority, controlling stake in M&C and the balance is listed on the London Stock Exchange.We expect rental income from the investment property portfolio to grow steadily. The investment portfolio comes mainly from Singaporean offices and retail properties. We expect favourable economic conditions in the city-state to persist for the near term, underpinning demand for office space. Rising income levels and growing consumption should support retail sales, translating into rental growth and revaluation gains for landlords. Management is looking to add a funds management business, which will add to the recurring portion of the earnings base.City Developments is a property developer and owner and investment holding company. Co. and its subsidiaries have four reportable segments: Property Development, which develops and purchases properties for sale; Hotel Operations, which owns and manages hotels; Rental Properties, which develops and purchases investment properties for lease; as well as Others, which comprises club operator and owner, investment in shares, property management, project management and consultancy services and provider of information technology and procurement services. The property development, hotel operations and rental properties segments are managed on a worldwide basis.
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