Monday, December 12, 2016

City Dev

City Dev is continuing to win plaudits for its success in monetising its assets into profit participation securities (PPS) even as luxury residential property prices remain soft.

Its latest PPS transaction entailed the injection of its 156-unit Nouvel 18 property for $977.6m, valuing the development at $2,750 psf. Under the structure, $102m PPS were issued to Green 18, a special-purpose vehicle owned by several high-net-worth individuals, offering 5% in annual returns plus additional upside if units are sold above $2,750 psf.

The move is seen largely as a de-risking of its balance sheet and also a way to avoid paying QC extension penalties. Thus far, the property developer has securitised $3.5b worth of properties since late 2014 and market watchers are anticipating more possible transactions in the pipeline. These include:

1) Its small and non-core industrial portfolio, comprising five properties. If divested for $350m, a foreign broker estimates it would lift RNAV value by $150m or $0.16/share.

2) Its six retail assets. The sizeable portfolio of six malls or retail units is currently valued at $2b and could potentially fetch more.

3) Legacy residential units. These include 58 units at Cliveden as well as its South Beach project, which has a gross development value of $3b.

While the weak market does indeed present its challenges, such securitisation moves could see the counter narrow the discount to its RNAV of $12.38.

The counter is currently trading at a 27% discount or more than 1sd from its 5-year P/B mean 1.16x. The street is relatively bullish on the counter with 19 Buy, 3 Hold and 1 Sell ratings and a consensus TP of $10.10.

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