Friday, November 14, 2008

CDL Defers South Beach Construction, Bets On Costs Easing

Source : The Business Times, November 14, 2008

Q3 net profit slips 11% but group expects to ride the storm

City Developments Ltd (CDL), which yesterday posted an 11 per cent year-on-year drop in third quarter net earnings to $150.8 million, has deferred construction of its South Beach project until construction costs, which have already started to ease, fall to more attractive levels.

South Beach: In December last year, CDL had said the retail, office, hotel and residential project would cost some $2.5b, including land cost of $1.69b

CDL is developing the project jointly with a Dubai World unit and Elad Group.

'The consortium believes that construction cost will come down over time and therefore, it will delay the development of South Beach till construction cost reverts to more reasonable levels,' CDL said in its results statement.

In December last year, CDL had said the retail, office, hotel and residential project would cost some $2.5 billion in all (including the land cost of some $1.69 billion) and estimated the project would be completed by 2012.

Under the terms of an agreement signed with the government, from whom the consortium bought the site, the South Beach consortium has up to 2016 to complete the development.

CDL also revealed yesterday that in the group's stable of pre-sold projects under development that qualified for the deferred payment scheme (DPS), only about one-third of the units sold were under DPS and 'thus its exposure to potential defaults is well under control'. The group does not extend DPS to sub-sales.

In the recently completed The Sail @ Marina Bay Tower 2, all of the buyers who had opted for DPS have paid up for possession of their units. 'Furthermore, the majority of the group's launched properties are expected to receive Temporary Occupation Permit in 2010 and 2011,' CDL said.

The group also announced it is delaying launching new residential projects due to the subdued property market and global economic uncertainty. Nevertheless, it has proceeded with the construction for The Arte at Thomson and The Quayside Collection at Sentosa Cove, 'both of which were secured at relatively low land and construction costs'.

'The oversupply for the office and residential segments which was originally projected by the market is not as serious as anticipated. With the current tight credit crunch and economic slowdown, the majority of developers will naturally defer the development of their projects and delay launches,' CDL said.

CDL revealed it had secured an anchor tenant for 9 Tampines Grande, a BCA Green Mark Platinum commercial property slated for completion by 2009. BT understands the tenant is Hitachi Asia, which has leased about 85,000 sq ft or the entire South Tower in the project under a deal brokered by Jones Lang LaSalle. Hitachi is expected to move out of Hitachi Tower at Collyer Quay.

On its outlook, CDL said: 'With good management practices in place and prudence in expenditure, all core segments of business - property development, hotel operations and investment properties - should remain profitable over the next 12 months.'

For the first nine months of this year, CDL's group net profit dipped 1.8 per cent to $480.95 million, due partly to the absence of writeback of tax overprovisions booked in the same year-ago period.

As for Q3, the group's bottomline was dented by a $56 million or 38.2 per cent drop in profit before tax from property development. This was due to lower revenue recognition from the group's Singapore residential developments.

Profit contribution from investment properties quadrupled to $74.3 million in Q3 2008 from $17.8 million in Q3 2007, due to the gain recognised from the sale of Commerce Point, higher rental income, recovery of some property taxes from tenants and increased profit contribution from CDL Hospitality Trusts.

Profit from hotel operations slipped 11.3 per cent to $70.5 million in Q3 on the back of a weakening sterling and US dollar against the Singapore dollar. CDL's London listed hotel subsidiary Millennium & Copthorne Hotels has hotels in the UK, US and Asia-Pacific.

Third quarter earnings per share slipped to 16.6 cents from 18.6 cents in the same year-ago period. Net asset value per share stood at $5.93 as at Sept 30, 2008, up from $5.72 as at Dec 31 last year. Unlike most other Singapore-listed property groups which revalue their investment properties and state them at fair value, CDL states its investment properties at cost less accumulated depreciation and impairment losses.

Group revenue fell 13.6 per cent to $688.2 million in Q3 2008. For the first nine months of this year, revenue dipped 4.8 per cent to $2.2 billion.

On the stock market yesterday, CDL closed 12 cents lower at $6.09.

The group said that its gearing remains relatively low at 46 per cent, based on cost and not including revaluation surpluses, with interest cover of 11.7 times.

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