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Why Did City Development Limited Shares Fall By 15.6% on Friday?

As you most likely have heard, property stocks in Singapore nose-dived last week following the announcement of additional property cooling measures.

Among the three property companies represented in the Straits Times Index (SGX:^STI), City Developments Limited (SGX:C09) was hit the hardest, plunging 15.6% on Friday, wiping out more than S$1 billion of its market capitalisation in the process.

So, why did its shares tank by so much?

Aggressive investments in Singapore residential land bank

In anticipation of stronger residential market in Singapore, CDL has been aggressively investing in residential land banks. In the first quarter of 2018 alone, the company acquired three government land sites – Handy Road site, West Coast Vale condo site and Sumang Walk EC site. Together with its acquisition of Amber park in a collective sale worth S$906 million, it has made four major investments in residential land in Singapore in just six months.

In total, the group has seven projects in the pipeline due for launch between 2018 and 2019. Buyer demand for these projects might be dampened due to the additional property cooling measures.

Source: City Developments Limited Investor Presentation Q1 2018

Not geographically diversified enough

The bulk of CDL’s revenue contribution and assets are from Singapore. Below is an illustration of its business breakdown by geography:

Source: City Developments Limited Investor Presentation Q1 2018

As you can see, 62% of the company’s revenue came from Singapore in the first quarter of 2018. It also has 51% of its assets in Singapore. The chart below shows its current landbank by region and segment:

Source: City Developments Limited Investor Presentation Q1 2018

The land bank pipeline in Singapore makes up 37% of its total land bank area. This exposes the firm to more impact from the new Singapore property cooling measures.

The Foolish bottom line

It is easy to see why market participants have driven the share price of CDL down after the announcement of the additional property cooling measures.

That said, it is difficult to quantify the actual impact of the new property cooling measures. Investors should also note that CDL has other revenue contributors like rental income from its 35 investment properties and pipeline of development properties outside of Singapore. It also derives a portion of its income from management of assets. Also, at its current price, it is trading at a 12% discount to its book value, which might make it an attractive proposition for value investors.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Jeremy Chia doesn’t own shares in any companies mentioned.