SINGAPORE (Apr 30): Aberdeen Asset Management, now part of Standard Life Aberdeen, has ceased to be a substantial shareholder in property developer City Developments. On April 19, CDL announced that Aberdeen had disposed of 503,700 shares for $6.5 million, or $12.898 a share, on March 28. Aberdeen’s stake in CDL thus dropped below 5% to 44.8 million shares.
Earlier this year, CDL had tried but failed to acquire the rest of Millennium & Copthorne Hotels that it did not already own. Its offer lapsed on Jan 26, with CDL receiving acceptances that gave it just 47.1% of M&C — below the 50% needed for the offer to proceed.
CDL had offered M&C shareholders 600 pence a share, with an increased dividend of 20 pence a share, on Dec 8, 2017. This was an increase from the earlier offer of 552.5 pence in cash per share announced on Oct 19, 2017.
In a letter to M&C shareholders accompanying the offer, CDL chairman Kwek Leng Beng had laid out CDL’s property development strategy and the role M&C played in providing recurring earnings as a counter cyclical balance to its volatile residential development activities.
“In making this offer, the board of CDL was mindful of several factors. M&C’s operating performance has been weak in recent years and, as a consequence, the shares in M&C have not performed well. The hotel industry as a whole is facing increasing costs and an uncertain trading environment, driven by political instability, technological disruption and industry consolidation, among other factors. The CDL Board knows that if M&C’s hotels are to compete effectively in a highly competitive and dynamic marketplace, considerable capital investment will need to be invested in the fabric of M&C’s hotels,” said Kwek in the letter.
Following the lapse of CDL’s offer, the independent committee of M&C issued a statement highlighting its efforts to protect the interests of minority shareholders by initially rejecting two proposed offers and ensuring that the final offer could not proceed unless there was agreement from the majority of the remaining shareholders.
“After rejecting two proposed lower offers from CDL, the focus of the independent committee was to allow for M&C’s minority shareholders to receive an offer. This was achieved and an acceptance condition was secured, which was a key element of our unanimous decision to recommend the final offer, allowing holders of a majority of the independently held shares to decide the outcome. Shareholders have now spoken; we respect the result and will continue to work on behalf of all shareholders to deliver long-term value,” said the committee in a statement.
For FY2017 ended Dec 31, CDL reported a 2% y-o-y decline in revenue to $3.8 billion. Earnings declined 17.6% to $538.2 million. Revenue growth was boosted by contributions from The Brownstone Executive Condominium, which obtained its temporary occupation permit in October 2017. However, FY2016’s results had been strong due to contributions from Hong Leong City Center in Suzhou, higher profit margin projects such as Coco Palms and D’Nest, the divestment of City e-Solutions, the sale of Exchange Tower and the recapitalisation of Summervale Properties.
Despite the weaker performance, many analysts list CDL as a top pick for riding the Singapore property market recovery. Deutsche Bank Markets Research analyst Joy Wang notes that the property market has performed well, with new launches seeing a strong sell-through rate of above 70%. However Singapore-listed property developers have underperformed in March.
“We believe that the divergence in performance reflects increased concerns regarding potential government measures in response to the rapid average selling price growth, increased concerns about uncertainty on the interest rate outlook and lowered risk tolerance as a result of ongoing macro events,” says Wang in an April 13 report.
“While we think investors could remain uncertain on the developers in the near term, we see a lengthening of the current virtual cycle for the Singapore residential property market. We also believe that policy measures are unlikely in the near term, especially with HDB re-sale pricing yet to bottom. Indeed, with the bulk of the en bloc money yet to be released and existing supply yet to be demolished, we are probably just at the beginning of this cycle,” she adds. CDL is one of Wang’s top picks with a “buy” call and price target of $16.
CGS-CIMB Research analyst Lock Mun Yee is also positive on the stock, saying CDL’s land-restocking efforts would enable the group to ride the residential upcycle.
“Potential catalysts are continued land restocking and good take-up rates for new launches, while a key risk is a faster-than-expected rise in interest rates, which would erode affordability,” says Lock in an April 16 report. She has a “buy” call and price target of $13.44 on CDL.
