Citi Research analyst Brandon Lee has named City Developments Limited C09 -0.19% (CDL) as his top pick among the Singapore-listed developers due to its valuations.

 

Lee&rsquo s flash note, dated June 26, comes after the government reduced the total supply of private housing in the 2H2024 government land sales (GLS) programme by 9% to 8,140 units across 19 sites.

 

This is the first semi-annual decrease after four consecutive increases in supply since 2H2022, notes Lee.

 

Of the 8,140 units, 5,050 units are on 10 sites on the confirmed list while the remaining 3,090 units are across nine sites on the reserve list. The confirmed list refers to sites that are launched for sale at pre-determined dates and most land parcels are sold through tenders. The reserve list refers to sites that are not released for tender immediately. These are, instead, made available for application. A site on the reserve list will be put up for tender when a developer has submitted a minimum price which is accepted by the government.

 

The non-residential supply under the 2H2024 GLS programme, which comprises 113,650 sqm (1.2 million sq ft) of commercial space and 530 hotel rooms, is relatively unchanged from 1H2024.

 

The programme released three sites at Punggol Walk, Woodlands Avenue 2 and River Valley Road, as well as an additional white site at Marina Gardens Crescent, which was added to the reserve list. The Marina Gardens Crescent site was previously on the confirmed list of the 1H2023 GLS programme, but was not awarded as the sole bid of $770.5 million or $984 psf in January by a Guocoland-led consortium was deemed to be too low.

 

To Lee, the reduction in housing supply from the latest GLS programme came as no surprise given the softening land prices and muted demand of an average of three bids for eight sites tendered year to date.

 

That said, the total supply in 2024, which remains at a 10-year high, should lead to subdued demand for most sites except for those at Bayshore Road, Chencharu Close and Holland Link due to the scarcity factor, says the analyst. A total of 17,050 units were introduced so far this year.

 

Meanwhile, the injection of new sites at Lentor, River Valley and Media Circle suggests that land prices in these areas may see &ldquo greater downside pressure&rdquo on the back of upcoming nearby tenders and existing and, or soon-to-launch projects with unsold units, notes Lee.

 

However, he adds that there may be limited impact to property prices given Singapore&rsquo s low unemployment rate, healthy growth in wages and peaking mortgage rates.

 

Furthermore, he points out that land supply alone has shown historically that it does not result in a decline in prices.

 

Lee has kept his &ldquo buy&rdquo call on CDL with an unchanged target price of $9.51, which is set at a 40% discount to his revalued net asset value (RNAV) of $15.85. &ldquo [This is] near where it traded at during the past few residential downcycles triggered by cooling measures,&rdquo Lee writes. CDL has put its RNAV at $19.46 which includes the revaluation surpluses of its investment properties and hotels.

 

&ldquo Our key assumptions include: residential: 2%/2%/2% rise in Singapore prices in FY2024/FY2025/FY2026 office: flat cap rate changes and -5/-3/+5% in Singapore Grade A rents in FY2024/FY2025/FY2026 hospitality: flat cap rate changes and 3%/4%/5% rise in FY2024/FY2025/FY2026 revenue per available room (RevPAR) and retail: flat cap rate changes and 0.5% - 2% rise in Singapore rents,&rdquo he ends.

The loan marks the first of its kind with criteria guided by targets set by the company

 

CITY Developments : C09 -0.19% (CDL) has secured a S$400 million sustainability-linked loan from DBS : D05 +0.31% to advance nature conservation and sustainable development in Singapore.

 

On Tuesday (Jun 25), both parties said the loan marks the first of its kind with criteria guided by targets set by CDL in its adoption of the Taskforce on Nature-related Financial Disclosures (TNFD) disclosures.

 

The facility is designed to incentivise CDL&rsquo s ongoing efforts to achieve significant environmental, social, and governance (ESG) milestones, said CDL and DBS.

 

Its specific performance targets are related to biodiversity conservation, waste management and water efficiency, which were highlighted as all &ldquo crucial components&rdquo of the TNFD recommendations.

 

CDL intends to use proceeds from the loan for general corporate funding and working capital purposes, including the redevelopment of the group&rsquo s existing assets.

 

&ldquo We aim to enhance our triple bottom line through sustainable development, achieve our net-zero ambitions, and align finance with sustainability performance through innovative capital management initiatives,&rdquo said CDL group chief financial officer Yiong Yim Ming. 

 

She noted that the group has secured over S$8 billion in sustainable financing since 2017 to &ldquo develop smarter, greener and more nature and climate-friendly infrastructure&rdquo .

 

&ldquo DBS is proud to work with CDL, one of the first Singapore companies to be on the list of TNFD adopters and the first in Singapore to publish TNFD-aligned disclosures,&rdquo said Chew Chong Lim, group head of real estate for DBS&rsquo Institutional Banking Group.

 

&ldquo As the importance of biodiversity and ecosystem preservation grows, it is essential that we integrate these considerations into our financial solutions.&rdquo

 

Launched in September 2023, the TNFD framework is a set of global standards and guidelines designed to help businesses effectively integrate nature and biodiversity considerations into corporate decision-making.

 

The framework is therefore considered enabling greater transparency, accountability and more consistent measurement in nature-related financial disclosures.

RHB Bank Singapore analyst Vijay Natarajan has kept his &ldquo buy&rdquo call on City Developments (CDL) with a lowered target price of $7.30 from $8 previously, after the company significantly underperformed at a 15% loss year-to-date against the Straits Times Index&rsquo s (STI) 3% rise.

 

&ldquo We believe investors fear its rising debt, which results in interest cost pressures and low return on equity (ROE). Management has reiterated divestments as a key focus this year (target: around $1 billion) &ndash the materialisation of which will be a positive catalyst, in our view,&rdquo writes Natarajan.

 

He continues: &ldquo We raise our revised asset net value (RNAV) discount to 50% from 45% amid gearing concerns, but maintain our call with share prices trading near historic lows and two standard deviations (s.d.) below its price-to-RNAV ratio (P/RNAV) &ndash limiting the downside.&rdquo

 

Meanwhile, earlier in April, CDL and Mitsui Fudosan acquired a site at Zion Road for $1.1 billion, which can be developed into 740 residential units, a retail podium, and 290 rental apartment units. 

 

CDL has a 50% stake in the project.

 

Natarajan writes: &ldquo We see CDL&rsquo s bid of $1,202/square feet (sq ft)/plot ratio as reasonably attractive, at around 30% below comparable land parcels sold in past years and accretive to bottomline.&rdquo

 

The company has also submitted two joint tender bids for the master developer site at Jurong Lake District, with the outcome set to be announced by 3QFY2024. 

 

These moves follow the healthy response to CDL&rsquo s projects, with 429 units sold in 1QFY2024, generating $737 million in sales value or three times of last year&rsquo s numbers.

 

The company has also been active in Europe, having acquired the 268-room Hilton Paris Opera hotel in May for EUR240 million ($350 million), and the Yardhouse project in the UK for GBP88 million ($149 million) in April, which will be developed into 209 co-living studios.

 

Following the UK acquisition, CDL&rsquo s UK living sector portfolio will comprise 1,857 operational and pipeline units and 2,400 beds in the purpose-built student accommodation sector. 

 

Additionally, the company also has private rented sector assets in Japan and Australia which can provide a combined $3 billion in assets, which Natarajan notes: &ldquo can eventually be divested into a fund or REIT to trim gearing and boost ROEs, in our view.&rdquo

 

Notably, CDL&rsquo s net gearing including the future values of its investment properties is set to rise to around 65% post-acquisitions, and has been steadily rising over the last few years with &ldquo more acquisitions than divestments&rdquo . 

 

&ldquo Rising interest costs have put a strain on its earnings, with interest cover for 1QFY2024 falling to 1.2 times. While the group is currently marketing various retail and industrial strata units in Singapore,we believe more sizable divestments are needed to assuage ballooning interest cost pressures,&rdquo notes Natarajan.

 

After factoring in higher financing costs, the analyst has lowered his FY2024 to FY2025 profit after tax and minority interests (patmi) by 8% to 14%.

 

He adds: &ldquo CDL&rsquo s latest sustainability report shows good progress in achieving its ambitious environmental targets, but we see room for improvement in the governance framework and earnings transparency.&rdquo

 

Key drivers noted by Natarajan include CDL&rsquo s strong recovery in hospitality and a steady build-up of its recurring income stream, the resilient Singapore residential market with healthy unbilled sales and the company' s strong brand presence and track record in Singapore.

 

Conversely, key risks include disappointing or negative returns from its overseas venture, an unexpected sharp decline in Singapore&rsquo s economy and the continued rise in interest rates.