Hot stock: CDL jumps 3.5% in morning trade following Citi reiteration on 'buy'

SHARES of mainboard-listed property developer City Developments Limited (CDL) jumped as much as S$0.35 or 3.5 per cent to S$10.23 on Thursday morning, the first time it has surpassed the S$10 mark in more than a year.

This follows a Citi Research report on Oct 16 which reiterated the broker's "buy" rating on CDL with a target price of S$13.14.

On Oct 11, CDL's London-listed subsidiary Millennium & Copthorne (M&C) was delisted from the London exchange after the developer, through a takeover bid, acquired it at 685 pence per share.

After the delisting, M&C will be re-registered as a private company.

CDL obtained valid acceptances of 99.2 per cent for its takeover offer on Oct 7, taking its stake to 99.7 per cent. It will exercise its rights to compulsorily acquire the remaining M&C shares held by shareholders who have not yet accepted the final offer.

Citi said it expects management to unlock value in M&C over the next few years via performance optimisation, redevelopment and divestments.

CDL's offer price of 685 pence per share for M&C represents a 37 per cent discount to Citi's revalued net asset value of 1,081 pence.

About 14 to 15 per cent of M&C's 147 hotels are managed by third parties, and Citi said M&C should appoint more established third parties to manage its hotels, particularly prime ones located in the UK and New York.

Given its sizeable portfolio and loyalty programmes, it could optimise yield management, Citi said.

Redevelopments and refurbishments could be another major avenue, with Citi expecting M&C to refurbish some older hotels.

In 2013, M&C redeveloped Copthorne Orchid Hotel to The Glyndebourne condo, which resulted in an operating profit margin of 51 per cent.

To fund redevelopment and refurbishment plans, Citi expects M&C to divest selected hotels in Singapore and Europe to CDL Hospitality Trusts. This includes W Hotel and M Social in Singapore.

CDL shares were up S$0.34 or 3.4 per cent to S$10.22 as at 2.49pm.