City Developments is “positioning for the future”, and a potential listing of its UK-focused REIT could unlock value, says CGS-CIMB Research analyst Lock Mun Yee.

In an Oct 5 note, Lock is maintaining “add” on the company, with an unchanged target price of $8.97, which represents an upside of 29.6%.

Apart from the strategic review of Millennium & Copthorne Hotels Limited (M&C)’s hotel portfolio, currently underway, value unlocking through asset rejuvenation or redevelopment should bolster its property portfolio returns in the longer run, Lock writes. 

“These include the redevelopment of Fuji Xerox Towers and Central Mall as well as asset enhancement initiatives for Palais Renaissance, Kings Centre and Jungceylon Mall in Phuket,” Lock adds. 

With an asset base of some $24 billion, City Developments is well-placed to extract more value from its properties, says Lock. 

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In addition to rental income, City Developments’ expansion into the private rented sector (PRS) in UK and Japan should also add to its recurring income streams, Lock writes. “The potential listing of its UK-focused office S-REIT should also lift its fee income from fund management activities as well as potentially lighten its balance sheet, in our view.”

Although the global hotel operating environment remains challenging, City Developments is seeing signs of recovery with a positive gross operating profit achieved in June 2021.

“We expect Singapore residential to continue to form the majority of development contribution in the near term. Together with the upcoming launch of the 696-unit Canninghill Piers, land parcels in Northumberland Road and Tengah Walk and residential component of Fuji Xerox redevelopment, we estimate City Developments has a development pipeline of approximately 2,000 units,” Lock writes. 

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With residential and land prices remaining elevated, management expects development margins to remain compressed in the near term. The group has also diversified its development activities into Australia, UK, Japan and Vietnam and we anticipate these overseas contributions to gradually pick up in the medium term.

“We believe a favourable outcome of the M&C portfolio strategic review and potential listing of its UK-focused office REIT would enable it to unlock its portfolio value and optimise property returns,” writes Lock. 

As at 10.17am.shares in City Development are trading 4 cents lower, or 0.58% down, at $6.83.

Photo: Bloomberg