• Copen Grand Executive Condominium (EC) fully sold within a month of launch. The recent launch of its 639-unit EC was well received. We estimate the Group achieved a comfortable ~25% profit margin on the project.
• Hospitality segment continues to benefit from pent-up demand. RevPAR surged 110% YoY, driven by increases in room rates and occupancy in Singapore, US and London.
• Maintain ACCUMULATE with unchanged RNAV-derived TP of $8.86, a 35% discount to RNAV of S$13.64. We view CDL as a proxy for the Singapore residential market and hospitality recovery. Asset monetisation, unlocking value through AEIs and redevelopments, and faster-than-expected recovery in the hospitality portfolio are potential catalysts for CDL, which could help narrow the discount between CDL’s share price and RNAV.

The Positives

• Copen Grand EC fully sold within a month of launch. The recent launch of its 639-unit Copen Grand EC in Oct 2022, at $1,300psf, was well received and the project was fully sold within a month of launch. We estimate the breakeven price for the development to be at $1,050-$1,100psf. The price of $1,300psf therefore gives it a comfortable ~25% profit margin.

• Hospitality segment continues to benefit from pent-up demand. RevPAR surged 110% YoY, driven by a 46% increase in average room rate and 15.9% points (71% from 55.1%) increase in occupancy. Hotels in Singapore, US and Europe continued to recover faster than those in Asia, though average room rates increased across all regions, signalling a strong recovery momentum.

• Healthy gearing levels boost ability of the Group to replenish landbank. The Group’s net gearing levels remain stable at ~83% for 3Q22 (83% for 1H22) with interest cover at 12.1x (16.5x for 1H22). With its strong cash reserves and available undrawn committed bank facilities totalling $4bn, we believe this gives the Group sufficient capacity to replenish its landbank with its existing inventory levels now at lower levels as most of its launched projects have been substantially sold.

The Negative

• Residential sales slowed in 3Q22 as lower inventory weighed. Residential sales declined in 3Q22 as lower inventory and the absence of new launches in 3Q22 weighed. CDL sold 95 units with total sales value of $281mn vs. 414 units with total sales value of $784.4mn in the same period last year.

• 1H22 revenue of S$1.47bn (+23.5% YoY) in line at 46% of our forecast. PATMI exceeded at 107% due to divestment gains from Millennium Hilton Seoul of $526.2mn and $94mn gains from deconsolidation of CDLHT, excluding which, performance would have been in line.
• All three core segments improved. Strong residential sales (712 units sold, in line) and recovery in the hospitality segment (RevPAR +110% YoY), which has turned EBITDA positive. Investment properties portfolio recovered with office and retail above expectations.
• 639-unit JV EC project, Copen Grand set to be launched in 4Q22; demand for project expected to be robust. Hotel operations to also benefit from reduction of Covid-19 restrictions, M&A and divestment opportunities.
• Downgrade to ACCUMULATE and lower RNAV-derived TP of $8.86 (prev. $9.19). We view CDL as a proxy for the Singapore residential market and hospitality recovery. CDL is trading at an attractive 40% discount to our RNAV/share of S$13.64. 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. However, TP is reduced to $8.86 as we incorporate higher borrowing costs for FY22e/FY23e along with slower profit recognition for its residential properties.

The Positives

• All three core segments improved. Residential sales remained robust in 1H22 despite cooling measures imposed at the end of the year. CDL sold 712 units with total sales value of $1.6bn vs. $1.7bn in 1H21. Sales value is comparable with 1H21 despite 27% less units sold as the Group’s existing inventory has been substantially sold. Its hotel operations globally improved with the easing of travel restrictions and the divestment of Millennium Hilton Seoul. Investment properties remained resilient with its office and retail portfolio recording strong occupancy in 1H22.

• Hotel segment 1H22 PATMI ahead, at 60% FY22e. RevPAR surged 110% YoY, driven by a 53% increase in the average room rate and 16% points (58.5% from 42.6%) increase in occupancy. Hotels in US and Europe continued to recover faster than those in Asia, though average room rates increased across all regions, signalling a strong recovery momentum.

• On-track for AUM target of US$5bn in 2023. Fund management remains an integral part of the Group’s transformational strategy and the Group will drive AUM growth via investment opportunities in both listed (IREIT and CDLHT) and unlisted platforms. It has an AUM of US$2.9bn, and management remains confident of hitting the Group’s US$5bn target by 2023. We believe one way it could boost its AUM is to pivot the proposed listing of its UK commercial REIT into a private fund.

• 12 cents special dividend a surprise, share buyback under consideration. A special dividend of 12 cents was declared vs. 3 cents in the same period last year and 6 cents pre-Covid. We revise our FY22e dividend payout to 24 cents on the back of management’s optimistic outlook for rest of 2022. Management is considering adopting share buybacks due to the current significant discount to its RNAV.

The Negative

• Replenishment of landbank to slow as land costs have surged. The management will be selective with the replenishment of its landbank. Management remains confident of replenishing its landbank as it believes that property prices will continue to trend up on the back of higher costs, though it expects volumes to slow.

Outlook

Healthy inventory levels allow for more conservative bidding

Cumulative launch pipeline of 1,931 units with the next launch Copen Grand (Tengah Garden Walk EC, 639 units) targeted for 4Q22. CDL also picked up three more sites which will add ~1,458 units to the pipeline. 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.

Strategic review of global hospitality portfolio

CDL has launched a strategic review of its global hospitality portfolio that should help narrow the discount to its RNAV. Its restructuring plans for its hotel business, Millennium & Copthorne, in the next few years should help the Group crystalise value for its assets. These restructuring plans may include asset divestments, portfolio optimisation as well as a rebranding of its hotels to improve earnings and drive upside to NAV.

• FY21 revenue of S$2,626mn (+24.5% YoY) formed 106% of our forecast but PATMI underperformed due to higher-than-expected taxes, excluding which, performance would have been in line with our forecasts.
• PATMI in the black due to strong residential sales and recovery in the hospitality segment, which has turned EBITDA positive. CDL moved 2,185 units in FY21, exceeding our sales forecast of 1,600 units.
• Proposed DPS of 31.1 Scts (FY20: 12 Scts), comprising 12 Scts in cash and a surprise distribution in specie of CDL Hospitality Trust (CDREIT SP, not rated) valued at 19.1 Scts.
• Maintain BUY and RNAV-derived TP S$9.19 (35% discount). We view CDL as proxy for the Singapore residential market and hospitality recovery play. 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.

The Positives

• Highest number of residential sales in 10 years. CDL sold 2,185 units in Singapore with total sales value of S$4.3bn in FY21. This was 66% and 131% higher than FY20's 1,318 units and total sales value of S$1.8bn and surpassed our FY21 sales estimate of 1.6k units. This was attributed to strong take-up at two projects, Irwell Hill Residence and CanningHill Piers, which were launched in FY21 and are presently 77% and 86% sold. However, due to higher land and development cost for newer projects, PBT margin for the development segment compressed from 23% to 22%.

• Hotel segment turned EBITDA positive. RevPAR jumped 49% YoY, with significant pick-up observed in 2Q/3Q21. Portfolio occupancy improved YoY from 38.6% to 51.0%, widening gross operating margin from 3.7% to 21.8% (2019: 39%). Hotels in US and Europe recovered faster than those in Asia and Australia which experience longer periods of lockdowns and restrictions. Hospitality EBITDA still 40% below 2019 levels. More recovery expected as travel returns.

• Opportunistic divestment of Millennium Hilton Seoul and Tanglin Shopping Centre. CDL signed a Sale and Purchase Agreement (SPA) to divest Millennium Hilton Seoul for S$1.25bn on 24 Dec 2021. The sales was completed on 24 Feb 2022 with significant divestment gain of S$528.8mn to be booked in FY22. CDL also launched a public tender for Tanglin Shopping Centre in December 2021, which closed on 22 February 2022 with a top bid of S$868mn or S$2,769 psf ppr. CDL owns 60% of NLA in this strata-titled property and we estimate this could unlock c.S$280mn in divestment proceeds for the group, which will be booked in FY22.

The Negative

• Listing of UK commercial REIT delayed. The listing of a UK commercial REIT, of which CDL would be the co-sponsor, was intended for 2021 but did not materialise. The management intends to continue the listing process. While the delay in listing was a setback, occupancy of the two assets that will be injected into the REIT, 125 Old Broad Street and Aldgate House, has improved. This should strengthen the initial portfolio for the upcoming UK Commercial REIT. As per our estimates, assuming a 20-25% stake for CDL, the injection of 125 Old Broad Street and Aldgate House into a 38%-geared S$3.5bn SREIT portfolio could unlock S$526-633mn for the group.

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.

• Catching Singapore property upcycle with a strong development pipeline of 1,746 units, translating to FY22e/23e GDV of S$2.1b/S$1.0bn.
• Impending recovery of hospitality sector and monetisation of assets through potential SREIT listing to improve financial position.
• Re-initiate with BUY and RNAV-derived TP S$9.19 (35% discount). CDL is trading at an attractive 49% discount to our RNAV/share of S$14.14.

Investment Thesis

1. Catching Singapore property upcycle with a strong development pipeline. CDL picked up two plots of land YTD – the Northumberland Road GLS and the Tengah Gardens EC site. Residential units from its redevelopment projects, Canninghill Piers (Liang Court) and Fuji Xerox, brings CDL’s unlaunched pipeline to 1,121 units, which will be launch over the next two years. Based on our forecasts, these two redevelopment projects should yield CDL respectable margins above 30%. Including the unsold units from earlier launches, we estimate that CDL has 1,746 units to be monetised, translating to FY22e/23e GDV of S$2.1b/S$1.0bn.

2. Impending recovery of hospitality sector. CDL’s hotel segment contributed S$192/178mn or 16.2%/15.8% of EBITDA in 2018/19. COVID-19 severely impacted the hospitality portfolio in FY20. Portfolio occupancy fell from 74% to 39%, resulting in a 64.5% nosedive in RevPAR. Revenue for the segment is expected to recovery gradually, in tandem with the sector. CDL’s cost containment initiatives to reduce duplication of roles and digitalisation efforts to lower manning cost should help improve margins, hastening its return to profitability. Keeping our forecast conservate, we projected 20% revenue CAGR for FY21e-FY25e. We expect the segment to turn NPI positive by 2024, before recovering to pre-pandemic levels in 2025.

3. Listing of UK Commercial REIT to improve balance sheet. CDL applied for the initial public offering of UK commercial SREIT in June 2021. We understand that that CDL will co-sponsor the SREIT. Assuming a 20-25% stake for CDL, the injection of 125 Old Broad Street and Aldgate House into a 38%-geared S$3.5bn SREIT portfolio could unlock S$526-633mn for the group.

Outlook

Closing the chapter on Sincere. CDL provided a S$1.7bn write down on its exposure to Sincere in 2H20, fully impairing its equity stake in Sincere. The sale of the equity stake in Sincere for US$1, which was announced on 10 September 2021, is CDL’s final attempt to turn the page on this chapter. In the announcement, CDL also reported the transfer of Sincere’s 10% effective stake in Shenzhen Longgang Tusincere Tech Park to the group, as partial repayment of loans extended to Sincere. This further reduces CDL’s exposure to Sincere to approximately S$85mn, while increasing CDL’s stake in Tusincere to 65% (Figure 1 and 2). CDL acquired its initial 55% stake in Feb21. As of 20 February 2021, 2224,933 sqm or 54% of the saleable area of Phase1-3 have been pre-sold, translating to sales proceeds of RMB7.2bn (c.S$1,477mn). Construction of Phase 4, the self-held office block, has not commenced.

Re-initiate with BUY and RNAV TP of S$9.19

CDL is trading at an attractive 49% discount to our RNAV/share of S$14.14. Asset monetisation and faster-than-expected recovery in hospitality portfolio are potential catalyst for CDL while recent AEIs and redevelopments should strengthen income stream and portfolio.

• COVID-19 impacted all segments, hotel operations accounted for 82% of decline in revenue due to closure of 28% of hotel inventory and lower RevPAR (-56.6%) and lower sales value from few units sold from mass market projects in 1H20 vs ultra-luxury projects in 1H19.
• Refreshing portfolio and unlocking additional GFA through redevelopment of Fuji Xerox and Central Mall.
• Maintain BUY with lower TP of S$10.68, after factoring in the protracted recovery in the hospitality segment. FY2020/21e EPS was cut by 26.1% and 7.2% respectively.

The Positives

+ Respectable 356 units sold in SG in 1H20 (-29.5%, 1H19: 505 units), despite 10 weeks of showroom closures. Sales value was 68.8% lower at $514.7K (1H19: $1.55mn), contributed by mass-market projects with lower margin, in contrast to the ultra-luxury projects sold in 1H19. CDL replenished its landbank in Jan20 through the successful tender of the GLS at Irwell Bank (540 units, est. launch 1H21). The Group will launch its JV project, Penrose Drive (566 units) in 3Q20.

+ Unlocking additional GFA through redevelopment of Fuji Xerox and Central Mall. Tapping on the CDB Incentive Scheme, plans for Fuji Xerox Towers’ redevelopment includes a 25% GFA uplift, with demolition works slated for 2H21. Plans for Central Mall include a 240K sq ft uplift in GFA, with a 70% commercial and 30% hotel or serviced apartment component. Plans for both developments are still pending approvals from the URA.

The Negatives

- All segments impacted by COVID-19; Hospitality segment hardest high with losses expected to continue despite cost cutting measures implemented. The Hospitality segment recorded a pre-tax loss of $208.2mn due to the temporary closure of 28% of the Group’s 152 hotels, $33.9mn in impairment losses on 8 hotels (6 in US, 1 in UK and 1 in Europe), and $7.0mn in doubtful receivables for 2 hotels which have payment difficulties due to COVID-19. RevPAR was down 56.6% as global hotel occupancy fell to 39.4%. The management guided that losses for this segment are likely to continue for the rest of the year due to the muted global recovery in international tourism.

Outlook

Following the privatisation of Millennium & Copthorne (M&C) and acquisition of 51.0% stake in Sincere Property Group (Sincere), the Group is focused on streamlining and restructuring operations. More divestment can be expected as expected as the Group reviews possible divestments of non-core hotel assets and China retail asset.

CDL is still eyeing the listing of a UK commercial REIT, which may materialise after the market volatility subsides, likely in 2021.

Maintain BUY with lower TP of S$10.68 (prev. S$11.82).

We cut our FY20e/21e EPS by 26.1% and 7.2% to factor in the protracted recovery in the hospitality segment. Our TP is lowered by 10.2% to $10.68.

• 4Q19 revenue up 20%, lifted by all segments but FY19 revenue down 19% due to timing recognition of overseas and EC projects upon handover, recognised in FY18.
• Take-up rate of 37% for total units in new launches in SG, up 40% YoY.
• Maintain BUY with higher TP of S$11.89. Our RNAV-derived target price represents 0.98x FY20e P/NAV.

The Positives

+ Sold 1,554 units totalling S$3.3bn in sales in SG in FY19, accounting for 37% of total units in new projects. The 6 new launches in 2019 resulted in a 40% and 49% increase in the number of units sold by the group and its JV and associates in FY18 (1,113 units, sales value of S$2.2bn).

+ Focused on growing recurring revenue and geographical diversification. CDL’s recurring revenue increased by 22.3% due to the full year contributions from acquisitions, AEIs and the opening of HLCC’s mall and office components in FY18. In FY19, CDL acquired 4 rental apartment projects (S$69.3mn) in Osaka and Shanghai Hongqiao Sincere Centre Phase 2 (S$344mn). Investment properties grew by 13.9% from S$5,761mn to S$6,562mn as at end 2019, which will help to grow recurring income.

The Negatives

- Hotel segment in the red largely due to S$58.2mn in impairment losses and S$26mn privatisation cost and closure of hotels for refurbishment. This is the second consecutive year of impairment for the segment (FY18: S$94m). Revenue for the segment was up 4.6%/1.5% in 4Q19/FY19 due to the acquisition of W Singapore. The group has earmarked S$140mn in their 2020 Capex programme which will go towards refurbishments for selected hotel in New York, UK, Paris and Singapore which should help to lift RevPAR post completion.

Outlook

Renegotiation of the acquisition of 24% stake in Sincere Property Group which was announced in May 2019 due to changes in economic conditions since negotiation of the deal. CDL remains positive on its long-term view of China and remains keen on the investment.

CDL’s Fund Management AUM target of S$5bn by 2023 will help to grow recurring income. The group has plans to create a new REIT to hold its UK properties (Aldgate House and 125 Broad Street) and is one step closer to its’ fund management ambitions with the obtainment of Capital Market Services (CMS) License in 3Q19, allowing the group to set up a private fund and/or REIT.

Of the two assets located in the CBD that could qualify for the plot intensification incentives under the Master Plan, CDL is assessing the feasibility of redeveloping Fuji Xerox Towers, which could unlock up to 25% uplift in GFA and rejuvenate CDL’s portfolio.

Covid19’s impact was more pronounced in SG hotel operations, where occupancy is currently in the 40-50% region, and lower take-up of high-end residential projects by foreigner.

Maintain BUY with higher TP of S$11.89 (prev. S$11.82).

Our RNAV-derived target price represents 0.98x FY20e P/NAV. Rerating catalyst would be sustained sell-through rates and pick-up in the hotel business.

• 4Q18 and FY18 PATMI below our expectations, mainly due to impairment losses recorded.
• Dividend of 20.0 cents per share for FY18 (FY17: 18.0 cents) was declared (including a 6.0 cent special interim dividend that was paid out in Sep 2018).
• Robust demand for launched Singapore projects – including those launched after July 2018.
• Steadily ramping up recurring income stream with addition of two London commercial buildings, ongoing AEI at Republic Plaza, and other potential AEI targets.
• Sizeable impairment losses recorded on back of U.S. hotels dragged 4Q18 PATMI down by 64%. Excluding this, and on a like-for-like basis, 4Q18 PATMI would have increased 17% YoY.
• Maintain ACCUMULATE with adjusted TP of S$11.82 (change of analyst).

The Positives

+ Robust demand for launched projects – including those launched after July 2018 cooling measures. The property development segment was the clear outperformer in FY2018. Keeping in mind its non-recurring nature, this segment has traditionally reported similar revenue to the hotel operations segment. Total sales value rose 14% YoY despite a 5% YoY lower number of units sold, and this is largely owed to New Futura (c.93% sold) – which carried a record price tag of c.S$3,500psf, with S$4,009psf being the highest price transacted for a non-penthouse unit to date. In addition, projects such as Whistler Grand (S$1,380psf, 716 units) and South Beach Residences (S$3450psf, 190 units) were able to achieve a total take-up rate of c.36% and c.28% despite being launched after July 2018.

+ Steadily ramping up recurring income stream. The acquisition of the two prime Grade A freehold commercial buildings in London (Aldgate House and 125 Old Broad Street) is in line with the Group’s strategy of achieving an AUM of S$5bn by 2023 and expanding its recurring income stream to S$900mn by 2028. These two properties are currently under-rented and have an upside of up to c.27% - particularly for the latter property, of which has 24% of its leases up for expiry this year, of which half have already been committed to higher rental levels. In addition, its Yaojiang International property in China had begun its master lease agreement with Distrii (which CDL has a 24% stake in) in Nov 2018.

The Negatives

- Sizeable impairment losses on back of U.S. hotels. S$94.1mn of impairment losses were recorded in 4Q18, mainly on the back of its U.S. hotels (stemming from an industry-wide challenge on the operating cost structure). This – in addition to the S$20.1 million allowance for foreseeable losses for two small-scale Central London development projects which may potentially be leased out and the loss of revenue from the temporary full closure of the Millennium Hotel London Mayfair in July 2018 – dragged PATMI down by 64% in 4Q18. Excluding these factors and the FY17 gains from the partial divestment of two Chongqing projects, 4Q18 PATMI would have increased 17% YoY.