The group&rsquo s earnings have fallen on absent divestment gains it has acquired a plot in Suzhou for an integrated project

 

Financial Results    

 

CITY Developments Limited : C09 -1.83% (CDL) posted a 94.1 per cent drop in net profit to S$66.5 million for its first half ended Jun 30, 2023, from S$1.1 billion in the previous corresponding period.

 

This was mainly due to the absence of significant divestment gains booked in H1 2022, as well as greater financing costs and impairment losses on its UK investment properties in the latest period, the property developer said on Thursday (Aug 10).

 

The divestment gains absent include those from the sale of Millennium Hilton Seoul and its adjoining land site, as well as the gain from the de-consolidation of CDL Hospitality Trusts (CDLHT) from the group, after the distribution in specie of CDLHT units in H1 2022.

 

 

CDL&rsquo s H1 2023 earnings per share stood at S$0.066 for the first half, down from S$1.227 the previous year.

 

Revenue for the half-year rose 83.6 per cent to S$2.7 billion, from S$1.5 billion a year earlier. This was due to strong revenue contributions from the group&rsquo s property development segment, as well as revenue improvements from its hotel operations segment and investment properties.

 

CDL, which marks its 60th anniversary next month, has been through a rough patch in recent years with its ill-fated investment in Sincere Property Group in China. In FY2020, the group booked a S$1.78 billion impairment on the investment and posted a net loss of S$1.9 billion for the year. The group then posted an S$85 million (restated) net profit in FY2021, followed by a record profit of S$1.3 billion in FY2022.

 

Kwek Leng Beng, the 82-year-old executive chairman of CDL, said at Thursday&rsquo s results briefing: &ldquo I would like to say that firstly interest rates are not going to go up anymore, in my view, because inflation (has peaked) around the world.

 

&ldquo Secondly, we have for many years gone from one place to another, we try to find a niche. And this niche is something that you know, you get it, feel it, you cannot explain in so many words. And I would like to grab opportunities, whether it is in the UK, Asia, America and so on.&rdquo

 

The property and hotel market veteran then said: &ldquo We make mistakes sometimes, once in a blue moon. But that is good we are not perfect.&rdquo

 

Making a reference to revenue per available room, he added: &ldquo But having said that, I want you to bear in mind that I don&rsquo t want to be going too much into, &lsquo what is RevPAR?&rsquo , &lsquo what is this?&rsquo I&rsquo m a big-picture man I want to (go for the) kill when there&rsquo s opportunity to kill, I want to save (my bullets) when there&rsquo s opportunity to save.

 

&ldquo I will bet you that our many journeys over the years have given us so much experience that I can&rsquo t tell you what I could do. But I will do (it).&rdquo

 

New launches in Singapore

CDL, often seen as a proxy for the Singapore residential market, has been reviewing the launch of Newport Residences in the Anson Road area. This is the 246-unit ultra-luxe freehold residential component of the 45-storey mixed-use development Newport Plaza that will come up on the former Fuji Xerox Towers site.

 

Sentiment in Singapore&rsquo s high-end residential market has been dampened after the Additional Buyer&rsquo s Stamp Duty (ABSD) on foreign buyers was doubled to 60 per cent in late April. The regulatory deadline for CDL to finish selling Newport Residences will fall in 2031.

 

Meanwhile, near the Singapore River, CDL hopes to obtain written permission before year-end to develop a mixed-use project on the site where Central Mall and Central Square stand. The group is aiming to launch the project&rsquo s residential component of about 366 apartments in the second half of 2024. The regulatory sales deadline will be in 2027.

 

The group is also preparing to launch a 512-unit executive condominium (EC) project in Bukit Batok West Avenue 5 in H1 2024.

 

Not one to shy away from the vast China market despite the group&rsquo s misfortune with Sincere Property, CDL&rsquo s group chief executive officer Sherman Kwek revealed on Thursday it has acquired a site in Suzhou &ldquo at a very good price&rdquo .

 

The plan is to develop the site into a sizeable integrated project with a 250-metre tall tower comprising predominantly offices there will also be a small hotel component above the offices. However, the majority of the project will be residences, housed in six shorter towers.

 

Said Sherman Kwek: &ldquo Notwithstanding everything that&rsquo s happened, I think right now is a good time for us to get back into China things can be bought at very good valuations. And parts of China are still doing very well, in spite of all the bad news that you hear in the press. Various cities still have very stable and very strong-performing residential markets.&rdquo

 

CDL has &ldquo more or less&rdquo fully sold its existing residential inventory in China and needs to replenish its landbank there, he added. &ldquo We still continue to focus on the upper-tier cities. So right now, for us, it&rsquo s Shanghai and Suzhou. We&rsquo re also looking at potential opportunities in Shenzhen.&rdquo

 

In H1 2023, the property development segment was the largest contributor to CDL&rsquo s revenue, with a 183.2 per cent increase to S$1.7 billion. This was largely due to the contribution from the group&rsquo s fully-sold Piermont Grand EC. The project received its Temporary Occupation Permit in H1 2023, allowing its revenue and profit to be recognised in their entirety upon completion under the current accounting policies for ECs.

 

Revenue from CDL&rsquo s hotel operations segment also rose by 12.4 per cent to S$672.9 million, as RevPAR grew across all regions amid the recovery in international travel.

 

Global RevPAR stood at S$151.50 for the first-half period, up 42.7 per cent from the same period last year. The group enjoyed strong recovery in the Asia and Australasia regions, while the Europe and the US markets continued to grow.

 

The addition of investment properties &ndash including St Katharine Docks in central London and two Osaka assets &ndash to the group&rsquo s portfolio also contributed to the revenue increase.

 

Sherman Kwek said: &ldquo The record profit performance last year, driven by significant divestments, provided us with the significant cash to make strategic acquisitions that would add value to our portfolio.&rdquo He noted that the group is focused on capital recycling and asset portfolio optimisation.

 

Finance costs in H1 2023 widened to S$220.6 million from S$99.5 million previously, mainly as a result of higher interest expenses and a fair-value loss on financial derivatives booked in the period. This came as opposed to a gain registered in the previous year.

 

Impairment losses amounting to S$33.5 million on the group&rsquo s UK investment properties contributed largely to the increase in the group&rsquo s other operating expenses in H1 2023.

 

An interim dividend of S$0.04 per share was declared for the half-year, down from S$0.12 in the same period the year before. The dividend will be paid on Sep 5, 2023, after the record date of Aug 21, 2023.

 

The hotel, Nine Tree Premier Hotel Myeongdong II, is a freehold 17-storey property comprising 408 rooms. 

 

CITY Developments Limited : C09 0% (CDL) on Tuesday (Jul 4) said it acquired a hotel in Myeongdong, Seoul, for 140 billion won (S$143.9 million).

 

The hotel, Nine Tree Premier Hotel Myeongdong II, is a freehold 17-storey property comprising 408 rooms. It opened in 2017, CDL said.

 

The hotel is within the Myeongdong-Euljiro commercial district, near Myeongdong&rsquo s walking street and departmental stores Lotte and Shinsegae. It is also within walking distance of Euljiro 3-ga subway station.

 

CDL&rsquo s wholly-owned subsidiary CDL Hotels (Korea) bought the hotel from Shinhan Nine Tree Real Estate Investment Trust.

 

The property developer said the Myeongdong hotel is well-placed to benefit from the positive market recovery momentum amid robust demand from international visitors. It noted that Seoul&rsquo s hotel room supply pipeline &ldquo continues to be moderated&rdquo as existing hotels get converted into residential or commercial buildings.

 

&ldquo This acquisition demonstrates our commitment to investing in Korea,&rdquo said CDL executive chairman Kwek Leng Beng.

 

In February 2022, CDL completed the sale of Millennium Hilton Seoul, along with its adjoining land site for 1.1 trillion won. It bought the hotel in 1999, entering the hospitality market at the time.

 

&ldquo Since divesting the property and its adjoining land site in February 2022, we have been actively seeking new opportunities to reinvest in Korea,&rdquo Kwek said.

 

We can sense the continued interest, ' vibe' and ' excitement' amongst buyers

DBS Group Research, citing strong interest from recent private residential launches, believes that developers behind these projects deserve a re-rating, given how they are trading at merely half their book value.

&ldquo July 2023 is turning out to be one of the most active months in a while,&rdquo write Derek Tan, Rachel Tan and Tabitha Foo in their July 3 note.

Five new residential projects, with some 3,800 units, are either being previewed or newly launched, with indicative pricing largely between $2,000 and $2,300 psf.

These projects, mainly catering to upgraders&rsquo demand, include Lentor Hills Residences (598 units) by Guocoland & Hong Leong The Myst (408 units) by CDL, and Pinetree Hills (520 units) by UOL.

&ldquo Despite the recent cooling measures, we can sense the continued interest, &lsquo vibe&rsquo and &lsquo excitement&rsquo amongst buyers,&rdquo write the DBS analysts, referring to their on-the-ground visits.

They note that property developers&rsquo share prices, year to date, have underperformed relative to REITs, and the benchmark Straits Times Index.

Year to date, developers are down 11%, versus the 1.8% drop of the STI and 3.1% decline of local REITs.

The bigger drop suffered by the developers was between May and June, which the analysts believe was a reaction to the latest round of cooling measures, which hits foreigners especially hard, but not affecting first time local buyers.

&ldquo We believe this is unwarranted due to developers having strong pre-sales performances for most of their existing projects.

&ldquo Even with pipelines of new projects, most are either targeting the suburban space or the executive condominium space where development risk is lesser, in our view,&rdquo the analysts write.

Overall, the Singapore Developer Index (FSTREH Index) is trading at an &ldquo attractive&rdquo multi-year low, at just 0.5x P/NAV.

&ldquo With a close correlation between market volumes and P/BV, strong sell-through rates in the upcoming launches will be a positive sentiment and a catalyst for developers to see a lift in valuations,&rdquo the analysts note.

Their top picks in this sector are CDL and Guocoland, with respective target prices of $10.50 and $2.30, &ldquo for their near rock-bottom valuations, core earnings turn around and attractive launch pipeline in the near term.&rdquo