The Positives
The Negative
Outlook
Healthy inventory levels allow for more conservative bidding
Three residential launches totalling 1,291 units are in the pipeline for 2022. CDL also picked up two more sites which will add 1,048 units to the pipeline, bringing unsold inventory to 3,047 as at 31 Dec 2021. CDL’s inventory levels are healthy, allowing it to be more selective and conservative when bidding for new sites. The site at Upper Bukit Timah Road was purchased in an off-market deal from Tan Chong Realty for S$126.3mn or S$603 psf and could yield 603 units. On 26 Jan 2022, CDL won the tender for the Jalan Tembusu GLS with a bid of S$589.9mn or S$1,302 psf, adding 640 units to the pipeline. Given the higher land prices and cost of construction, CDL is aiming for margins of at least 10% for new projects.
Unlocking value through strategic redevelopments
CDL entered into a put and call option agreement with Far East Hospitality REIT (FEHT SP, not rated) to acquire Central Square, a 99-year leasehold commercial and residential development, with a remaining lease tenure of approximately 72 years, for S$315mn. Central Square is adjacent to CDL’s Central Mall. The purchase of Central Square is expected to be completed in Mar22. The enlarged site, comprising Central Mall’s office component, Central Mall conservation shophouses and Central Square, will be redeveloped under URA’s Strategic Development Incentive Scheme, yielding a GFA uplift of 67%, from 441,650 sq ft presently to 735,00 sq ft. The proposed mixed-use development will comprise commercial, hotel and service apartment components, subject to CDL getting planning approval for residential use. Phased completion for this redevelopment is expected in 2027.
City House, which is located along Robinson Road and Cross Street, falls under the CBD Incentive Scheme, which could potentially unlock additional GFA. Similar to the Fuji Xerox redevelopment, the redeveloped site could benefit from GFA uplift if CDL decides to undertake the redevelopment to convert the assets into a mixed-use development. The management is currently evaluating the merits of undertaking a redevelopment and has not announced any plans presently.
Distribution in Specie hints at more active recycling of hospitality assets
CDL has proposed distribution in specie (DIS) of CDLHT valued at 19.1 Scts, allowing shareholders to take park in the recovery of the hospitality sector. The DIS will reduce CDL’s stake in CDLHT from 38.7% to 27%, resulting in a deconsolidation of CDLHT. CDL will recognise an estimated accounting gain of c.S$467.5mn on the deconsolidation of CDLHT and gearing will improve from 61% to 55% on a pro forma basis. The deconsolidation will allow CDL to recognise gains on any future sale of assets to CDLHT should the transaction value exceed the carrying book value of the assets while allowing unitholders to benefit from the recovery in the hospitality sector. This could be the start of more active recycling of hospitality assets to CDLHT. The DIS will be subjected to shareholder approval during the AGM on 28 April 2022.
Maintain BUY and RNAV TP of S$9.19
We view CDL as proxy for the Singapore residential market and hospitality recovery play. While land prices have trended up in recent years, redevelopment and off-market purchases should provide better margins, allowing to replenish its inventory and participate in the peaking Singapore residential market. CDL is trading at an attractive 48% discount to our RNAV/share of S$14.14. Asset monetisation, unlocking value through AEIs and redevelopments, and faster-than-expected recovery in hospitality portfolio are potential catalyst for CDL, which could help narrow the discount between CDL’s share price and RNAV.
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