UOB Kay Hian analyst Adrian Loh has kept a &ldquo buy&rdquo rating on City Developments Limited (CDL) with a target price of $9.20.

 

On May 24, CDL reported a resilient operating performance in 1QFY2022 ended March supported by healthy hospitality occupancy rates, with strong room rate and revenue per available room (RevPAR) metrics in most of its geographies with the exception of New Zealand.

 

London and Europe were notably robust with RevPAR spiking 10x and 7x respectively, as expected by Loh. &ldquo We expect 1HFY2022 and even 3QFY2022 numbers to be similarly strong as the summer holiday season kicks in from June onwards, and especially looking at recent outlook statements from various airlines regarding the summer high season,&rdquo writes the analyst.

 

As movement restrictions in Singapore eased in 1QFY2022, offices in general saw a gradual increase with workers exiting the &ldquo work from home&rdquo mode.

 

In 1QFY2022, CDL reported that its Singapore office portfolio had a healthy occupancy rate of 93% and higher than market average of 88%. A positive effect of this has been retail sales which has reached close to pre-Covid-19 levels, resulting in CDL&rsquo s retail occupancy of 95% as compared to the market average of 92%.

 

However, CDL&rsquo s Singapore residential segment saw a 41% y-o-y fall in units sold due to uncertainty after the December 2021 property cooling measures.

 

&ldquo We do not view this however as a major cause for concern given that CDL&rsquo s launches in 2022 are back-end loaded,&rdquo says Loh. &ldquo In addition, our channel checks with the construction industry point to a recovery, and the risk of delays has materially reduced.&rdquo

 

For China, the analyst anticipates a likely drag in 1HFY2022 due to the significant Covid-19 measures currently implemented by the government. &ldquo Although office occupancy in Shanghai remains relatively stable, retail in Suzhou has been significantly impacted and residential sales and construction work in these two cities as well as in Shenzhen have been negatively affected,&rdquo Loh observes.

 

On the whole, CDL&rsquo s outlook remains reasonably strong for the rest of 2022 to the analyst given its back-end loaded residential launches in Singapore as well as continued recovery in its hospitality segment.

 

See also: ' Hold' BRC Asia on construction rebound, easing steel prices: SAC Capital

 

In his report, Loh has upped his earnings estimates after factoring in the sales of Piccadilly Grand, as well as the slightly higher average selling prices for Canninghill Piers.

 

Looking ahead, the analyst adds that there will be further earnings upgrades during the group&rsquo s 1HFY2022 results, in line with the capital gains that will come from the divestment of Tanglin Shopping Centre and the collective sale of Golden Mile Complex.

 

The completion of the divestment of the Millennium Hilton Seoul will also see a disposal gain of $526.2 million for the group.

 

&ldquo The market will be looking for guidance as to whether CDL intends to distribute some of these proceeds in the form of a special dividend,&rdquo Loh writes.

 

Jefferies analyst Krishna Guha has kept his &ldquo buy&rdquo call on City Developments, following the property and hotel company&rsquo s 1QFY2022 operational updates showing &ldquo good momentum&rdquo across the various key business segments.

 

&ldquo The group continues to execute on its strategy of asset redevelopment and capital recycling,&rdquo writes Guha in his May 24 note, where he has indicated a target price of $9.50. Valuation continues to be attractive at 0.9x stated book, 0.4x revalued book, adds Guha.

 

CDL and its associates sold 188 Singapore residential units in 1Q, chalking up a total sales value of $477.9 million, down 7% y-o-y, as cooling measures introduced late last year dampened transaction volume.

 

However, CDL expects prices to stay firm due to moderate supply and upcoming new launches. Construction activity has started to accelerate with labour issues being progressively sorted out. Sales momentum continues to be strong for projects with the right attributes.

 

For example, earlier this month, CDL and JV partner MCL Land, launched a city fringe mixed development project, which was 77% sold on the launch weekend at an average psf of $2,150.

 

CDL has also replenished its land bank by teaming up again with MCL Land to win a government land sale site for $1,300 psf ppr. It also bought an off-market parcel for $126 million which can be developed into 400 units.

 

CDL, with major interests in hotels, is enjoying a lift in this sector. Worldwide, its revenue per average room night more than doubled y-o-y to $89.6, with recovery led by UK, US and Singapore. &ldquo There is still ample room for recovery as RevPARs are still 40% below pre-pandemic,&rdquo says Guha.

 

CITY Developments Limited (CDL) : C09 0% on Tuesday (May 24) posted a 41 per cent year-on-year drop in homes sold for the 3 months ended Mar 31, the first full quarter since cooling measures were implemented in December last year.

 

The mainboard-listed property developer and its joint-venture associates sold 188 units with a total sales value of S$477.9 million for Q1, versus 319 units with a total sales value of S$513.6 million a year ago, CDL said in a business update for its first quarter.

 

While the cooling measures have impacted transaction volumes momentarily, the group foresees the property market to &ldquo remain resilient and housing prices to hold firm due to moderate supply and strong underlying fundamentals&ldquo .

 

CDL&rsquo s latest launch, Piccadilly Grand, a joint venture with MCL Land, saw strong take-up when it was marketed in May. Some 315 units or 77 per cent of the Farrer Park project&rsquo s 405 apartments were sold on launch weekend at an average of S$2,150 per square foot.

 

In the pipeline are another 1,000 residential units coming up at 2 recently acquired sites. In January, CDL partnered MCL to put in the top bid of S$768 million for a 210,623 sq ft state land plot at Jalan Tembusu in the east. The project will yield about 640 units.

 

In April, CDL acquired a 179,007 sq ft site at 798 and 800 Upper Bukit Timah Road for S$126.3 million, which, subject to planning approval, it plans to redevelop into a residential project with over 400 units.

 

The group&rsquo s hotels saw global occupancies recovering to 52.2 per cent in Q1, up from 36.8 per cent year on year.

 

Global revenue per available room (RevPAR) recovered to S$89.60 from S$44.40, up 101.8 per cent year on year. Meanwhile, the average gross operating profit margin rose 8.5 percentage points year on year to 14.6 per cent from 6.1 per cent.

 

CDL believes this is due to the easing of Covid-19 travel restrictions and a high vaccination rate in the majority of the countries where the group operates.

 

In Singapore, the group&rsquo s hotel businesses are picking up. It recorded a 74.3 per cent surge in average room rate and a 43.8 per cent rise in RevPAR. This came on the back of higher demand driven by staycations and corporate groups, as well as 2 hotels catering to the government quarantine business.

 

For its investment properties, CDL&rsquo s Singapore office portfolio had an occupancy of 93 per cent, above the islandwide occupancy of 88 per cent. Republic Plaza, its Grade A office building in Raffles Place, is 95 per cent occupied and saw positive rental reversion in Q1 2022, CDL said.

 

Committed occupancy of the group&rsquo s retail portfolio is at 95 per cent, above the islandwide occupancy of 92 per cent. Its flagship mall, City Square Mall, is 97 per cent occupied, while at Palais Renaissance, committed occupancy reached 99 per cent.

 

In March, the group completed a S$315 million acquisition of Central Square, which is to be redeveloped alongside CDL&rsquo s Central Mall properties into a mixed-use development. &ldquo Through the URA Strategic Development Incentive Scheme, the redevelopment could potentially yield a significant GFA uplift,&rdquo CDL said.

 

Divestments completed during the quarter include Tanglin Shopping Centre, which was sold for S$868 million. The group also recognised a total gain of S$526.2 million net of taxes and related transaction costs on Millennium Hilton Seoul and its adjoining land site.

 

Additionally, CDL holds 6.3 per cent of the total share value and 34.8 per cent of the strata area of Golden Mile Complex, which was sold for S$700 million to a consortium comprising Far East Organization, Perennial Holdings and Sino Land.

 

Shanghai&rsquo s citywide lockdown &ldquo caused a decline in business activity in Q1 2022 but office occupancy remains relatively stable&rdquo , CDL said. Hong Leong Hongqiao Center held on to committed occupancy of the office and retail space at 93 per cent. &ldquo However, the Group faces increasing pressure to provide financial support as preventive and control measures continue. Retail has been severely impacted in Suzhou as only essential services and takeaways are allowed,&rdquo CDL said.

 

Residential sales and construction work at CDL&rsquo s properties in Shanghai, Shenzhen and Suzhou took a hit from the Chinese government&rsquo s Covid-19 control measures. Business activities are expected to improve as these cities reopen.

 

The group&rsquo s net gearing ratio as at end-March stood at 53 per cent, after factoring in fair value on investment properties. The group had cash reserves of S$3.1 billion and available undrawn committed bank facilities totalling S$4.6 billion.