Important Events
City Developments Limited (CDL) has announced a 5-year senior unsecured SGD bond. The bond’s final price guidance (FPG) is 3.712% (coupons paid semi-annually). It is available only for accredited and institutional investors.
Both the issuer (CDL) and the bond are expected to be unrated. The bond will be issued under CDL’s existing SGD 5b Medium Term Note Programme, and proceeds will be used to finance the general working capital requirements and corporate funding of CDL and its subsidiaries, and/or to refinance the existing borrowings of CDL and its subsidiaries.
About CDL
CDL is one of the largest real estate companies in Singapore, operating with a global footprint covering 143 locations in 28 countries and regions, with a focus on Singaporean assets. Its operations are also fairly diversified across various business segments, with three main segments in Property Development, Hotel Operations, and Investment Properties, each of which contributes to over a quarter of total assets in CDL’s portfolio.
Financial highlights
(Note: Dollar amounts in SGD terms unless otherwise stated.)
CDL saw strong revenue growth of +83.6% YoY to 42.7b in 1H22. This was mainly driven by the property development segment which contributed to about 64% of revenues ($1.7b) and also saw strong growth YoY (up about $1.1b or +183%).
Apart from property development, the hotel operations segment also saw higher revenues of $0.7b in 1H23 (1H22: $0.6b), with management reporting ‘continued strong momentum in international travel’. In addition, the Investment Properties segment saw a solid increase in revenues to $0.20b in 1H23 (1H22: $0.17b).
However, the absence of substantial divestment gains recorded in 1H22 (e.g. sale of Millennium Hotel Seoul), coupled with strong headwinds in various cost segments, weighed on overall profitability. Two contributors to cost headwinds included the large increase in cost of sales from $0.9b to $1.9b as well as a slight increase in net finance costs from $0.04b to $0.15b (both YoY as of 1H23). As such, despite the strong revenue growth seen above, CDL saw significantly lower profits in 1H23 of $0.12b, compared to 1H22’s figure of $1.1b.
CDL also provided a voluntary operational update for 3Q23, where it described its operating performance as ‘resilient’. Within the property development segment, management has said it has witnessed a ‘healthy response to recent launches’ and also stated that four of its projects were over 90% sold, generally painting a picture of resiliency for this segment.
Within the investment properties segments, occupancy rates remained relatively high based on disclosed figures by management (which generally were in the 90% region for Singapore and UK, and 84% for Jungceylon Shopping Center in Phuket). Finally, within the hotel operations segment, RevPAR generally improved YoY in YTD September 2023.
Credit highlights
CDL reported a net gearing ratio of 94% in 1H23 (FY22: 84%); they also provided a net gearing figure including the fair value on investment properties of 58% in 3Q23 and 57% in 1H23 (FY22: 51%). Meanwhile, its interest cover ratio deteriorated to just 3.2x in 3Q23 and 2.8x in 1H23 (FY22: 9.8x), likely hurt by higher interest expenses from 1H22 ($119m) to 1H23 ($221m). With that being said, we think its proportion of fixed-rate debt remains relatively low at 46% in 1H23 (FY22: 42%), while its average debt maturity is also fairly short at 2.3y.
One of its key strengths is its robust cash position of $1.9b in 3Q23, while it also remains liquid with its combined cash and available undrawn committed bank facilities sitting at $2.9b, which we think is likely sufficient to cover the approximately $2,745m worth of debt maturing in 2024 itself. Management has also repeatedly stated its belief that its debt has a ‘high level of natural hedge’ against FX fluctuations, with its debt profile also very diversified in terms of currencies (e.g. just 55% of debt in SGD).
As a whole, the Group faces headwinds from an uncertain macro backdrop and the effects of a higher-for-longer interest rate environment, but think that CDL remains a fairly solid and well-capitalised issuer helped by its solid liquidity position.
About the new issue
We compare this new issuance with existing CITSP bonds by City Developments Limited, as well as bonds by its peer issuer ESR Group Limited (also another diversified real estate issuer). We find the FPG of 3.712% unattractive.
This new issuance’s yield of 3.712% generally puts it at a lower yield compared to all the existing CITSP bonds in the table below, except for its bonds maturing in March 2024. Considering the higher duration risks involved with this new issuance compared to the existing bonds, we find this yield discount unattractive for investors. This is clearer if we do a direct comparison between this bond and its closest peer in terms of maturity: CITSP 4.139% 06Apr2028 Corp (SGD). Essentially, investors would be earning about 17bps less for taking on 0.8 more years of maturity, while earning a lower coupon as well.
Investors should instead consider bonds from other similar issuers – one of them is ESR Group Limited, which is also a large diversified real estate issuer. We highlighted previously that the issuer continues to have a positive outlook, particularly within its New Economy segment, and we like its ESRCAY 5.100% 26Feb2025 Corp (SGD) bonds for its short tenor and attractive yields.
Related article: Idea of the Week: ESR Group – Finally seeing the impact of higher interest rates?
Table 1: Comparison against peers
| Bond Name | Call / Maturity Date (Years to Call / Maturity) |
Ask Price | Yield to Call / Maturity (%) |
| CITSP New Issue* | 30 Jan 2029 (5.0)* |
100.000* | 3.712%* |
| CITSP 3.900% 21Mar2024 Corp (SGD) |
21 Mar 2024 (0.2) |
100.070 | 3.39% |
| CITSP 3.780% 21Oct2024 Corp (SGD) |
21 Oct 2024 (0.7) |
99.984 | 3.83% |
| CITSP 2.700% 23Jan2025 Corp (SGD) |
23 Jan 2025 (1.0) |
98.784 | 3.99% |
| CITSP 2.300% 23Mar2026 Corp (SGD) |
23 Mar 2026 (2.2) |
96.581 | 3.97% |
| CITSP 3.480% 15Jun2026 Corp (SGD) |
15 Jun 2026 (2.4) |
99.340 | 3.77% |
| CITSP 2.000% 16Jun2026 Corp (SGD) |
16 Jun 2026 (2.4) |
95.752 | 3.88% |
| CITSP 4.139% 06Apr2028 Corp (SGD) |
06 Apr 2028 (4.2) |
101.000 | 3.88% |
| ESRCAY 5.100% 26Feb2025 Corp (SGD) |
26 Feb 2025 (1.1) |
100.350 | 4.82% |
| Source: Bloomberg, Bondsupermart, iFAST
compilations. Data as of 22 Jan 2024. *Note: Not yet issued. Only available for institutional and accredited investors. |
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Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds a position in ESRCAY 5.100% 26Feb2025 Corp (SGD). The analyst who produced this report holds a NIL position in the abovementioned securities.
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