Hotel arm could buoy CityDev amidst property curb

Its UK, China, and US portfolios are safe from the cooling measures.

City Developments (CDL) could get a boost from its hotel segment amidst the impending impact of the property curbs on its property portfolio in Singapore, RHB analyst Vijay Natarajan said.

“The outlook for Millennium & Copthorne Hotels (M&C), CDL’s 65%-owned listed subsidiary, is positive with strong global economic growth providing tailwind for the hospitality sector,” Natarajan commented.

The analyst noted that M&C is eyeing to spend a significant amount for capital expenditure on the improvement and maintenance of its existing hotels.

“Whilst CDL did not succeed in the recent privatisation bid, management remains optimistic of prospects and will look at increasing a stake, if the right opportunity arises,” Natarajan added.

In addition, the analyst believes that CDL’s diversified regional and sector presence could mitigate some impacts of the surprise cooling measures. Aside from Singapore which accounted to 51% of its assets and 62% of total revenues, the firm has a portfolio in UK (12% of assets), China (10%), and the US (8%).

“Singapore remains the core investment market,” the analyst explained. “As such, we believe the latest policy measures will cool investors’ sentiment towards the stock.”

Also read: CityDev's share price hit by surprise property policy

According to Natarajan, CDL has about 3,300 units unsold in Singapore which accounts for about 25% of its revalued net asset value (RNAV) as per RHB’s estimates.

He mentioned that projects which could be hit the most include Amber Park en bloc, Handy Road, West Coast Vale site and Sumang Walk executive condominium (EC).

“These were purchased at higher prices, compared to neighbouring sites in anticipation of a recovery,” the analyst explained.

Meanwhile, Natarajan noted that CDL’s net gearing is at a historical low of 10%.

“The healthy balance sheet shields it from any adverse impact from rising interest rates and gives ample debt headroom of more than $5b for acquisitions,” he commented.

However, the analyst said that CDL could be burdened to deploy a sizeable capital amidst policy tightening and challenging market conditions for acquisitions in its core markets.