ALTHOUGH THE SINGAPORE residential market has been dampened by several policy measures with the most recent announced on Jan 13, CLSA has upgraded City Developments to a buy in a 100-page property report dated Apr 7. According to property analyst Pang Chin Hong, despite 44% of its revalued Gross Asset Value (GAV) coming from Singapore residential properties, “a substantial portion is pre-sold,” he says. Another 25% and 12% of GAV come from the office space and hospitality sector respectively.
The strongest driver for City Developments is likely to come from the divestment of its commercial property portfolio, Pang says. Last year, the company divested several older commercial properties such as The Corporate Building, The Corporate Office and Chinatown Point. In 2005, the company had planned to sell 11 properties to Suntec REIT for $788 million but the deal fell through. “We believe that CDL will continue asset divestment this year as the group is shifting its focus toward a higher-quality portfolio as evidenced by the South Beach development, 9 Tampines Grande and 11 Tampines Concourse,” Pang writes.
What could City Developments sell? At this stage, it’s unlikely to be Republic Plaza which Pang has revalued at $2.2 billion. Instead, lower-grade properties such as City House, Fuji Xerox Towers, Central Mall, Katong Shopping Mall, some strata units in Tanglin Shopping Centre, The Arcade, Palais Renaissance, Delfi Orchard, units in GB Building, Fortune Centre, Sunshine Plaza and Plaza by the Park are possible candidates for divestment. Pang reckons these properties are worth a further $2.2 billion. Tanglin Shopping Centre, worth $105 million, has been put up for a collective sale but market observers note there are so far no takers. Sunshine Plaza is also believed to have been up for sale for a while.
Nonetheless, Pang is optimistic that City Developments can realise good gains if it manages to sell these assets. The developer does not revalue properties unlike other companies. Investment properties are carried at historical cost plus accumulated depreciation. Pang reasons that the carrying book values of these properties are likely to be much lower than their true value and City Developments could rake in a capital gain of $1 billion if it can find buyers for such a diverse portfolio.
“This presents a key catalyst for City Developments’ share price in 2011. With interest in commercial properties on the rise, we would not be surprised to hear of aggressive offers,” Pang writes. He has a target of $14.31 for the stock against his RNAV (Revised Net Asset Value) estimate of $16.84.
Back on the residential front, City Developments’ mass-market project, H2O Residences, which saw a takeup rate of 27% during the first weekend launch on March 5, is to have drawn mediocre response so far. Also, only 21 of the 56 units released in the 226-unit The Residences at W on Sentosa Cove have been sold. City Developments says it doesn’t plan to launch any more units in the near term. At a results briefing in Feb, chairman Kwek Leng Beng says he can afford to hang on to the units because he has holding power.
No comments:
Post a Comment