During a briefing on Aug 12, City Developments’ (CDL) management pointed out that its book NAV based on historical cost accounting stood at $9.22 as at June 30, 2021. If NAV were to include fair value gains on investment properties, it would be $14.22. If NAV were to include fair value gains on investment property and revaluation surplus on the hotel portfolio, it would rise to $17. Hence based on the closing price of $6.83, CDL is trading at 0.7 times book NAV, 0.48 times P/NAV including fair value gains, and 60% discount to revalued NAV (RNAV).
Now what if the freehold Fuji Xerox Towers - which can be assumed to be held at cost of say below $100 million - were to be redeveloped with a GFA uplift, and in the ratio announced on Aug 12? Assuming construction costs at say, $650 psf, and selling price of residential and valuation of commercial at $2,400 psf, the gross development value (GDV) could be at $1 billion -give or take. Excluding development charge, Fuji Xerox Towers could add as much as 80 cents to CDL’s RNAV. Much depends on how the collective sale of the leasehold International Plaza goes ahead. A buyer for the latter would spur interest in Fuji Xerox Towers' potential GDV.
During a results briefing, CDL group CEO mulled whether CDL could bring in one or more financial partners for parts of Fuji Xerox Towers during its redevelopment. A partnership may depend on whether CDL could divest the Seoul Hilton. The selling price could be as high as $1 billion. Some hotels in Seoul are being redeveloped into other uses. Perhaps CDL could find a South Korean partner to redevelop the Seoul Hilton.
Whatever the case, its current share price may start to reflect the revaluation of Fuji Xerox Towers which won’t complete till 2025. Already, CDL is rising off its bottom, following a spate of positive divergences between price and smoothed RSI. Immediate, initial resistance is at $7.
The Straits Times Index held its own, although it closed nearer its low of the week, at 3,165. This still keeps the index above its 50- and 100-day moving averages at 3,148, and 3,158 respectively. Quarterly momentum peeped above its equilibrium line but was unable to sustain the move above it. ADX is very low, DIs are neutral, but the two-year momentum has strengthened, and that could keep the STI on an even keel. Support needs to stay tight, at 3,148 for the time being, and resistance/breakout remains at 3,178.
Photo: Street Directory
