1Q22: Positive Outlook As Operating Performance Remains Resilient
CDL reported a resilient operating performance in 1Q22 supported by healthy
hospitality occupancy rates. However, its Singapore residential segment saw a 41% yoy
fall in units sold due to uncertainty after the Dec 21 property cooling measures. It would
appear that CDL’s outlook remains reasonably strong for the rest of 2022 given its
back-end loaded residential launches in Singapore as well as continued recovery in its
hospitality segment. Maintain BUY. Target price S$9.20.
WHAT’S NEW
• Key highlights for 1Q22 were the recovery in the office segment… As movement
restrictions in Singapore eased in 1Q22, offices in general saw a gradual increase with
workers exiting the ‘work from home’ mode. In 1Q22, City Developments (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’s retail occupancy of 95% (vs market average of
92%).
• …and the hospitality segment which has seen strong occupancy, room rate and
revenue per available room (RevPAR) metrics in most of its geographies with the exception
of New Zealand (see charts overleaf). As expected, London and Europe were notably robust
with RevPAR spiking 10x and 7x respectively. We expect 1H22 and even 3Q22 numbers to
be similarly strong as the summer holiday season kicks in from Jun 22 onwards, and
especially looking at recent outlook statements from various airlines regarding the summer
high season.
• Policy-related slowdown. Due to Dec 21’s property cooling measures, market sentiment
stagnated resulting in only 188 units sold for 1Q22 (-41% yoy) vs 319 units in 1Q21.
However, we do not view this as a major cause for concern given that CDL’s launches in
2022 are back-end loaded. In addition, our channel checks with the consutruction industry
point to a recovery, and the risk of delays has materially reduced.
• China likely to be a drag in 1H22 due to the significant COVID-19 control measures
implemented by the government. While 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.
STOCK IMPACT
• Positive outlook for investment properties as economy recovers. With the post-COVID19 reopening coupled with tight office supply in Singapore, CDL stated that 2022 and 2023
should continue on the office market’s recovery path. Notably for some of its assets like City
Square Mall and Palais Renaissance in Singapore, tenant sales are close to, or have even
surpassed pre-COVID levels. In the UK, CDL stated that an increase in recent lettings and
longer-term commitments from existing occupiers have benefitted Aldgate House and 125
Old Broad Street.
• Improved liquidity situation. As at end-1Q22, CDL had S$4.6b in cash and available credit
facilities and net gearing of 53%, an improvement from end-21 when these metrics stood at
S$3.9b and 61% respectively. The infusion of cash has likely come from the sale of the
Millennium Hilton Seoul and we expect CDL’s liquidity situation to improve further from the
gains from the sale of its stake in the Tangling Shopping Centre and the Golden Mile
Complex.
EARNINGS REVISION/RISK
• Upgrading earnings. We have incorporated the sales of Piccadilly Grand into our earnings
estimates as well as slightly higher average selling prices for Canninghill Piers. Note that
there will be further earnings upgrades during CDL’s 1H22 results given the capital gains
that will come from: a) the divestment of Tanglin Shopping Centre (CDL 60.2% ownership of
strata area), b) the collective sale of Golden Mile Complex (CDL 34.8% of strata area). In
addition, it completed the divestment of the Millennium Hilton Seoul for S$1.25b and will
recognise a disposal gain of S$526.2m. 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.
VALUATION/RECOMMENDATION
• We retain our BUY rating on the stock with a target price of S$9.20 which incorporates
a 30% discount to our RNAV of S$13.20/share. We like the stock for its exposure to the
office and hotel segments which continue to exhibit positive momentum in their respective
path towards recovery and higher profitability. We note that CDL disclosed during its 2021
results briefing that its RNAV (including revaluation of its hotel portfolio) was S$18.61/share
as at end-21.
SHARE PRICE CATALYST
• Continued economic recovery from COVID-19 especially resumption of leisure and business
travel.