City Dev

City Dev: The recent price correction on the back of the removal from the EPRA Global Developed Index (GDI) provides an excellent buying opportunity. CLSA estimate that CDL would actually meet the requirements threshold if disclosures are improved at its 63%-owned hotel subsidiary M&C, which should be relatively easy.

As a guide, EPRA index requirements need companies to generate at least 75% of Ebitda from property related activities; income from its management contracts for hotel business are excluded under this guideline.

Optical Ebitda for CDL falls short of EPRA 75% threshold, and this problem is exacerbated by the lack of disclosure in segment reporting at Millennium Copthorne (MLC).

But if you deep dive into MLC’s business suggests CDL’s Ebitda makes the cut. Hence, the house believes that CDL stands a good chance to be included back into the EPRA index at the next quarterly review as the required disclosure should be easy.

With no change in fundamentals and trading at a 32% discount to RNAV (14% avg.), CLSA upgrade rating from O-P to BUY.