City Developments Ltd: More positive newsflow

By Foo Sze Ming
Thu, 15 Jul 2010, 09:00:26 SGT

Private preview for 368 Thomson, a 157-unit freehold residential development in District 11, started last Thursday. The take-up rate of this project is impressive. The units fetched an average selling price of S$1,350 psf, which is higher than our expected selling price of S$1,250 psf. We are now raising our average selling price assumption for 368 Thomson to S$1,360 psf. CDL also recently announced the sale of 287 strata units in Chinatown Point for a consideration of S$250m (S$1,403 psf). We are now pegging our valuation of Chinatown Point units to the sale consideration and this adds an additional S$24m to our RNAV estimate. With the adjustments, our fair value of CDL, which is pegged at parity to our RNAV estimate, has now been raised to S$11.16. For now, CDL looks fairly valued, with a limited upside potential of 1.1%. We maintain our HOLD rating on CDL.

Pricing and demand at 368 Thomson exceeded expectations. Private preview for 368 Thomson, a 157-unit freehold residential development in District 11, started last Thursday. According to news reports, 128 units (81.5% of the total units) had been sold just after 4 days from the start of the private preview. Take-up rate of this project is impressive, in comparison to the average take-up rate of 27.4% for the new residential launches in May. The units fetched an average selling price of S$1,350 psf, which is higher than our expected selling price of S$1,250 psf. The remaining units are expected to be launched at a price increase of 2-3% and taking this into consideration, we are now raising our average selling price assumption for 368 Thomson to S$1,360 psf. With the adjustment, our pre-tax profit for this project has increased by S$20.4m, or 45.4%, to S$65.3m.

Divesting Chinatown Point units for S$250m. On Tuesday, CDL announced that it has entered into a conditional Sale and Purchase Agreement for the sale of 283 retail strata units and 4 office strata units (total strata area of 178,187 sq ft) in Chinatown Point for a consideration of S$250m (S$1,403 psf). The buyer of the units is Perenial Chinatown Point, which is made up of a consortium of investors that include German fund manager SEB and put together by Mr Pua Seck Guan, former CEO of CapitaMall Trust. The divestment is unlikely to have a significant impact on CDL’s operations as retail rents constitute just a small portion of CDL’s rental income. The selling price is attractive, at a 10.6% premium to our RNAV valuation of the property (S$226m). We are now pegging our valuation of Chinatown Point units to the sale consideration and this adds an additional S$24m to our RNAV estimate.

Fair value raised to S$11.16; Maintain HOLD. With the adjustments, our fair value of CDL, which is pegged at parity to our RNAV estimate, has now been raised to S$11.16 (previously S$11.11). When the divestment of Chinatown Point units is completed, CDL will have a warchest of over S$1b in cash and this puts it in a very good position to expand its landbank and office/retail property portfolio. But for now, CDL looks fairly valued, with a limited upside potential of 1.1%. We maintain our HOLD rating on CDL.

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