CDL Able To Weather Uncertainty For Next 3 Yrs

Source : The Business Times, February 29, 2008

It posts full-year profit of $725m; bottom line would be $2.8b if fair value gains included

THE top brass at City Developments Ltd (CDL) yesterday said the property group has 'the financial muscle to weather the current period of uncertainty even for the next three years', after announcing a record full-year net profit of $725 million.

Attractive asset: City Square Mall

The group sold about $6.2 billion of residential projects in 2006 and 2007, which means it has locked in, to a very large extent, handsome profits which have yet to be booked.

These substantial and better-than-expected profits will continue to be recognised progressively based on construction progress. 'Some will come in 2008, 2009, perhaps also into 2010,' CDL managing director Kwek Leng Joo said at the group's results briefing yesterday.

'Even if the market recovery should take place a little bit later than expected, I think we'll be OK,' he added.

In short, the group can afford to delay launches of new residential projects if necessary to ride out the current weak sentiment.

As a major office landlord, CDL will also benefit from the office crunch as many of its key tenant leases are up for renewal between now and 2011 - a period when office supply is expected to be limited.

In the hospitality sector, CDL's hotel arm Millennium & Copthorne Hotels has a string of hotels with a wide geographical spread - which should act as 'an insurance against a downturn in any particular geographical area', CDL executive chairman Kwek Leng Beng said.

The group also has many other attractive assets such as City Square Mall and St Regis Hotel in Singapore which it could potentially sell, boosting its bottom line.

As well, CDL has a healthy balance sheet, with relatively low net gearing of 48 per cent.

CDL posted a 106 per cent jump in group net profit for the year ended Dec 31, to a record $725 million. However, had it adopted the revaluation policy of its peers, its bottom line would have surged to $2.84 billion after factoring in about $2.1 billion of fair value gains on investment properties.

The $2.84 billion net earnings for the year ended Dec 31 would pip the $2.76 billion net profit posted by fellow property giant CapitaLand for the same period.

CDL's fourth-quarter net profit rose about 71 per cent year-on-year to $235 million, with revenue inching up 3.7 per cent to $765.7 million.

The group has also yet to recognise any profits for One Shenton, The Solitaire, Cliveden at Grange and Wilkie Studio, as these residential projects are still in the initial stage of construction. These projects alone account for $1.7 billion in sales value.

Even if the group defers or paces its launches, it will proceed with the construction of its projects where construction cost had been favourably secured earlier, CDL said.

It may also consider building selected projects when the construction cost stabilises at a reasonable level. It expects that when sentiment improves and the market begins to recover, there will be pent-up demand which the group will be in a position to meet.

The group is planning to launch in the first half of this year some 427 private homes in four Singapore projects - Shelford Suites, a condo on the former Lock Cho Apartments site at Thomson Road, The Quayside Isle @ Sentosa Cove and a condo at Pasir Ris.

In its results statement, CDL also said that it has an investment commitment in the private fund Real Estate Capital Asia Partners, which acquired Jungceylon complex at Phuket's Patong Beach. This is a 1.5 million sq ft mall which opened for business recently and is next to the Millennium Resort Patong Phuket.

CDL also reckons it has 'ample time' to review its strategy for its office portfolio, given improving office rental yields.

Its options include retaining its office properties at a low cost base, monetising the portfolio and/or extracting maximum value by selling its assets wholesale or individually. Another option would be to spin off an office real estate investment trust.

The group has all along been following its conservative policy of stating investment properties at cost less accumulated depreciation and impairment losses. On adoption of Financial Reporting Standard FRS 40, the group continues to state these assets at cost less accumulated depreciation and impairment losses.

Most other Singapore- listed property groups state investment properties at fair value, as permitted by FRS 40.

CDL's full-year revenue for the year ended Dec 31, 2007, rose 22 per cent to $3.1 billion, also a record for the group.

The group also gave a segmental breakdown of profit before tax, including share of after-tax profit of associates and jointly controlled entities, which showed that pre-tax from property development more than doubled from $225.8 million in 2006 to $506.3 million in 2007.

Pre-tax profit from hotel operations fell from $396.6 million in 2006 to $285.4 million in 2007, mainly because the 2006 figure had included a $150.9 million one-off gain from the sale of long leasehold interests in four Singapore hotels to CDL Hospitality Trusts.

Profit before tax from rental properties more than quadrupled from $30 million in 2006 to $133.6 million in 2007.

CDL is proposing a final dividend of 7.5 cents per share as well as a special final dividend of 12.5 cents per share. Both payouts are tax exempt.