Capital Recycling And Global Expansion Will Unlock Value

Key Takeaways

• Divestment of non-core assets and international expansion into resilient sectors are boosting revenue stability, asset values, and positioning for long-term demand trends.
  
• Emphasis on sustainability, fund management, and digitalization enhances operational efficiency, strengthens margins, and increases recurring income, reducing reliance on cyclical property development.
  
• Reliance on volatile asset sales, overseas market risks, and mounting financing costs threaten sustained earnings growth, while Singapore concentration and hospitality challenges add further vulnerability.

Catalysts

City Developments Limited (CDL) is a leading global real estate company with a network spanning 168 locations in 29 countries and regions.

• The company's accelerated capital recycling and active divestment strategy are unlocking value from underperforming and non-core assets, improving return on equity and providing liquidity for deployment into higher-yield opportunities, which supports future revenue and earnings stability.
  
• Steady land bank replenishment in Singapore and targeted expansion into overseas markets with a focus on resilient asset classes (e.g., multifamily in Japan, prime residential in China's Xintiandi, and build-to-rent in the UK), positions the group to harness long-term trends of urban migration and rising middle-class demand in Asia, enhancing development revenues and long-term asset values.
  
• Continued commitment to sustainable and green building practices, which has won the group industry recognition, aligns with increasing investor and tenant demand for eco-friendly properties, potentially lowering financing costs and strengthening net margins.
  
• Scaling up the fund management business, including future REIT listings and private funds seeded by its global living sector portfolio, will drive fee-based recurring income, mitigating the cyclicality of property development and supporting net margin expansion.
  
• Adoption of digitalization, PropTech, and smart building strategies is expected to bolster operational efficiency, attract premium tenants, and lead to improved rental yields, positively impacting recurring rental income and group earnings.

City Developments Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming City Developments's revenue will grow by 20.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.7% today to 8.1% in 3 years time.
• Analysts expect earnings to reach SGD 486.0 million (and earnings per share of SGD 0.54) by about August 2028, up from SGD 194.8 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting SGD626.8 million in earnings, and the most bearish expecting SGD313.4 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.6x on those 2028 earnings, down from 30.9x today. This future PE is greater than the current PE for the SG Real Estate industry at 15.7x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.83%, as per the Simply Wall St company report.

City Developments Future Earnings Per Share Growth

Risks

• Rising interest rates and global credit tightening could continue to elevate City Developments' financing costs-especially with group gearing now at 70%-resulting in margin compression and impacting net earnings despite recent efforts to lock in fixed-rate debt and pursue capital recycling.
  
• Persistent weakness and oversupply in key overseas property markets, particularly UK commercial and China office sectors, expose City Developments to risks of asset write-downs, difficulty in executing planned divestments at favorable prices, and thus potential negative impacts on revenue and asset valuations.
  
• Dependence on divestment gains and one-off asset sales to support earnings and shareholder payouts introduces volatility to overall financial performance and may be unsustainable in the long term, increasing the risk of inconsistent revenue and profit growth.
  
• Singapore's continued reliance as the group's main asset and earnings base leaves City Developments vulnerable to domestic property market cooling measures, government regulation, and demographic trends such as an aging population, which could dampen housing demand and pressure recurring income.
  
• Legacy challenges in the company's hospitality segment-including FX exposure, inflationary cost pressures, and uneven post-pandemic recovery in major markets like the US and Singapore-could result in persistently weak hotel EBITDA and drag on group net margins and return on equity.

Valuation

• The analysts have a consensus price target of SGD7.047 for City Developments based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of SGD9.01, and the most bearish reporting a price target of just SGD4.8.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SGD6.0 billion, earnings will come to SGD486.0 million, and it would be trading on a PE ratio of 17.6x, assuming you use a discount rate of 10.8%.
  
• Given the current share price of SGD6.73, the analyst price target of SGD7.05 is 4.5% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.