CDL To Shelve South Beach

Source : The Straits Times, Nov 14, 2008

Economic turmoil and high construction costs cited as reasons

PROPERTY giant City Developments (CDL) and its two joint-venture partners have shelved the $2.5 billion high-profile South Beach project earmarked for a hotly contested site in Beach Road.

The consortium cited 'the economic turmoil and the high construction cost environment that Singapore is currently experiencing' as reasons for the move. It will delay the project until building costs fall to 'reasonable levels'.

The project was launched with much fanfare when CDL and its partners Istithmar - it is part of the Dubai World Group - and El-Ad Group clinched the 3.5-ha site with a $1.69 billion bid.

CDL said then that South Beach would elevate Singapore's unique branding as a global city. Designed by renowned British architects Foster & Partners, the project features two towers of up to 45 storeys, plus the restored conserved military buildings of the old Beach Road Camp. It will have premium office space, two hotels, shops and city residences.

In August, CDL executive chairman Kwek Leng Beng said the company already had people knocking on its doors, keen to buy one block or one hotel.

CDL said earlier that it expected to complete the 99-year leasehold project by 2012, though it had until 2016 to finish it.

The news came on a bleak day for CDL, which reported an 11 per cent fall in third-quarter net profit to $150.8 million and a 13.6 per cent decline in revenue to $688.2 million.

Prices and demand have fallen, although in the three months to Sept 30 it sold 'more than 330 units' of The Livia in Pasir Ris, which has 724 units.

Demand and rental expectations in the office market were also hit by the financial crisis, the group said.

While its 53 per cent subsidiary Millennium & Copthorne Hotels delivered credible results, its contribution to CDL's revenue and pre-tax profit fell due to the sterling's weakening against the Singdollar.

The property development business remains the biggest earnings contributor but its third-quarter profit before tax fell from $147 million to $91.1 million.

Hotel operations accounted for $70.47 million of third quarter profit before tax, down from $79.5 million. Rental properties contributed $74.3 million, up from $17.8 million.

CDL is holding back the launch of new residential projects due to the economic uncertainty, but it is proceeding with construction of The Arte at Thomson and The Quayside Collection at Sentosa Cove.

Both sites were secured at relatively low land and construction costs, it said.

CDL said its exposure to potential defaults was under control as it did not sell too many units under the deferred payment scheme and did not extend this scheme to sub-sales.

It said its investment properties would still benefit even if renewed rentals were moderated as they would still be far higher than the previous low rates. The firm added that its hotel business had never operated at a loss since it went public in 1996.

Earnings per share dipped 10.8 per cent in the third quarter to 16.6 cents. Net asset value per share reached $5.93, up from $5.72 at the end of last year.

Its gearing is at 46 per cent, with interest cover at 11.7 times.

CDL said it expected all core business segments to remain profitable over the next 12 months.

The shares closed 12 cents down at $6.09 yesterday.