Thursday, May 8, 2008

Worst Is Likely Behind Us: Paulson

Source : The Business Times, May 8, 2008

(NEW YORK) US Treasury Secretary Henry Paulson said US financial markets are emerging from the credit crunch that many economists believe has pushed the country to the brink of recession, according to The Wall Street Journal.

'I do believe that the worst is likely to be behind us,' Mr Paulson told the newspaper in an interview.

The Journal said Mr Paulson's comments appear to be the Bush administration's most optimistic assessment yet about the financial turmoil that began last year with defaults on sub-prime home loans and spread through financial institutions that owned tens of billions of dollars in mortgage-backed securities.

In the interview, however, the treasury secretary predicted there would be further 'bumps along the road', and that it would take 'some months longer' for the market distress to fully dissipate. Some financial markets, he said, still aren't fully functioning.

The Journal said Mr Paulson pointed to the Federal Reserve's decision to help prevent the collapse of Bear Stearns and to provide liquidity to other investment banks as 'an inflection point' in the crisis.

The newspaper said Mr Paulson also believes Congress will soon pass two measures he considers critical: one to improve the regulation of Fannie Mae and Freddie Mac, the government-chartered mortgage companies, and another to overhaul the Federal Housing Administration. -- Reuters

ARA Asset's Q1 Net Profit More Than Doubles

Source : The Business Times, May 8, 2008

REAL estate fund management company ARA Asset Management, which was listed on the mainboard late last year, saw net profit soar 137 per cent to $9.2 million in the first quarter ended March 31, 2008.

Total revenue jumped 107 per cent to $17.5 million from $8.5 million a year earlier, mainly on higher management fees from an enlarged Reit portfolio, an increase in net property income for Reits it manages, and portfolio management fees from ARA Asia Dragon Fund (ADF).

Net margin was 53 per cent, up from 46 per cent the year before.

'We are pleased to report a good set of results,' said ARA chief executive John Lim. 'The results are testament to the stability of our income, which together with our strong balance sheet, puts us in a good position to capitalise on any opportunities that may arise amid the current uncertainty in financial markets.'

ARA reported a 108 per cent increase in Q1 earnings per share to 1.58 cents, from 0.76 cents.

Cash and cash equivalents totalled $91.8 million at March 31 - a sharp rise from $14 million a year earlier. Total assets under management stood at $10.4 billion on March 31.

OCBC Posts 4% Lower Q1 Net Profit Of $622m

Source : The Business Times, May 8, 2008

THE volatility in the financial markets has taken its toll on local bank earnings, with OCBC Bank yesterday reporting a 4 per cent drop in first-quarter net profit to $622 million despite higher divestment gains. The earnings beat analysts' expectations, however.

OCBC's results for the three months to March 31 were hit by a plunge in life assurance profits from its subsidiary Great Eastern Holding, as well as mark-to-market trading losses and lower realised gains on investment securities. For the corresponding quarter last year, OCBC's net profit was $647 million.

Basic earnings per share, including divestment gains and tax refunds, was 20.1 cents, down from 21 cents.

A boost for OCBC for the quarter came from a net $156 million gain from divestment of shares in The Straits Trading Company - against net divestment gains of $90 million in the year-ago period. This helped to offset a $41 million fall in tax refund to $6 million. Stripped of divestment gains and tax refund, core net profit was 10 per cent lower at $460 million compared to the year before. But on a sequential basis, the core net profit was 8 per cent higher than the preceding quarter's $425 million.

The quarter's net profit of $622 million beat the $570 million median estimate of seven analysts surveyed by Bloomberg News.

As for writedowns relating to collateralised debt obligations (CDOs), OCBC said its ABS (asset-backed securities) CDO investment portfolio did not require further allowances this quarter. 'The CDO problem is behind us,' said CEO David Conner at a press briefing yesterday. The bank's CDO investments of $250 million had already been written down by 85 per cent last year. Additionally, their corporate CDO investment portfolio of $344 million 'continues to perform', it said, despite the quarter's mark-to-market losses of $16 million for the underlying credit default swaps, which impacted non-interest income.

Operationally, it was a mixed bag as the bank saw growth in its core businesses of net interest income, but a decline in its non-interest income. For the quarter, non-interest income, excluding divestment gains, dropped 26 per cent to $377 million, due to a steep 93 per cent fall in life assurance profits, a key reason being mark-to-market losses for the investments in the non-participating fund.

The bank's derivatives and securities trading also registered a $65 million net loss. The bank said a boost in fee and commission income - driven by growth in investment banking, wealth management, loan-related and trade-related activities - partly helped prop up non-interest income.

Net interest income - or profit from loans - for the quarter grew 26 per cent from a year ago to $638 million. Customer loans hit $75.4 billion, up 19 per cent year-on-year, led by corporate and small and medium enterprise (SME) lending in Singapore, Malaysia and overseas markets, as well as Singapore housing loans. However, Mr Conner noted that the industry loans growth - which has been in the above 20 per cent range - is expected to come down. 'It is bound to taper off,' he said, adding: 'It will come down to a low double-digit range.'

The increase in the bank's loans was mainly to the building and construction, housing, and transport sectors. Interest margins improved from 2.04 per cent a year ago to 2.17 per cent as the cost of funds fell faster than its asset yields.

Expenses increased 21 per cent to $426 million, due largely to the bank's higher salaries and increased headcount. The jump in hirings occurred in the group's overseas markets, including Malaysia, Indonesia and China. Increased business promotion expenses, volume-related brokerage and processing fees also accounted for the swelling expenses.

Mr Conner was cautious about the future, stating 'we are on alert given inflationary pressures and the potential for a further deterioration in the global economy'. He added that the bank's strategy is to pick and choose to lend to industries that are identified to be successful. On the results, he said: 'Our first-quarter core earnings showed resilience in spite of volatile global financial markets.'

OCBC shares ended 2 cents or 0.2 per cent lower yesterday at $9.

DBS Q1 Net Earnings Dip 2% To $603m

Source : The Business Times, May 8, 2008

Trading losses drag down income, but earnings still better than expected

DBS Group's first-quarter net profit dipped 2 per cent to $603 million from a year earlier, dragged down by trading losses amid financial market volatility, the bank said yesterday.

The lower net profit for the quarter was still better than analysts had expected. Net interest income - from the bank's main lending business - rose 9 per cent to $1.06 billion from a year earlier, mainly due to strong growth in loans over the year, which helped offset narrower interest margins or the profit earned on loans.

Ms Wong: Loans growth this year is unlikely to match last year's exceptional expansion, but should continue at a double-digit pace, given Q1's strong growth -- JOHN HENG

The group recorded a net trading loss of $161 million, including an $86 million loss announced in February from liquidating assets held in a special purpose vehicle, Red Orchid Secured Assets.

But overall non-interest income was supported by gains from financial investments, including $53 million from DBS's stake in payment card firm Visa which listed in March.

Still, its non-interest income of $506 million was 11 per cent down from a year earlier.

Six analysts polled by Reuters had predicted an average net profit for DBS of $566 million, while the median estimate of six analysts surveyed by Bloomberg was $572.5 million.

Compared with Q4 last year, net profit was up 23 per cent, net interest income was flat as interest margins shrank slightly despite customer loans growth, and non-interest income rose 7 per cent.

Basic earnings per share for the quarter were 39.5 cents - against 40.75 cents a year earlier and 35.5 cents in the preceding quarter.

The group declared an interim tax-exempt dividend of 20 cents a share for the quarter. Its share price ended 1.1 per cent lower at $20.28 yesterday.

Chief financial officer Jeanette Wong said the bank will continue to manage pressures from low interest rates in Singapore by repricing its deposits and loans.

'Credit spreads are improving for new corporate loans although the existing loan book may take a few quarters to be fully repriced,' she said.

Net customer loans reached $114.2 billion at the end of March, up 21 per cent from a year earlier and 5 per cent higher than at end-December.

Loans growth this year is unlikely to match last year's 'exceptional' expansion, but should continue at a double-digit pace given the strong growth in the first quarter and the existing pipeline of loans, Ms Wong said.

'While this quarter's growth was broad-based across industries and the region, the strongest growth was in Singapore corporate borrowing.

'We continue to see a healthy pipeline in loan demand from our customers.'

Non-performing loans (NPLs) fell 15 per cent from a year earlier but rose 2 per cent from the previous quarter to $1.19 billion due to the larger loan base, DBS said. The proportion of NPLs in the bank's loan book fell to one per cent, from 1.5 per cent a year ago and 1.1 per cent in the previous quarter.

Asked if provisions for bad loans could rise in the coming months if borrowers are hurt by slowing economic growth and financial market turbulence, Ms Wong said: 'We are always very watchful of potential systemic risks. But so far, what we have not seen are things that would worry us.'

Still, she said, the bank is 'keeping an eye' on its loans to small and medium-size businesses 'to make sure that if there is a downturn in the economy here in Asia, none of them goes through unnecessary stress'.

Raffles Hotel May Change Hands Again

Source : The Business Times, May 8, 2008

Preliminary deal for hotel, arcade said to be inked for about $650m

Raffles Hotel is believed to be changing hands again, along with its adjoining shopping arcade. The overseas buyer is understood to be a family trust, most likely linked to a European family.

BT understands that a preliminary deal has been inked for the sale and that the price is in the 'mid-$600 million range'. However, the transaction has not been completed yet.

Raffles Hotel: The overseas buyer is said to be a family trust likely linked to a European family. The deal comes with a 40-year management contract for Raffles Hotels & Resorts, sources say

The deal comes with a 40-year management contract for Raffles Hotels & Resorts, which currently manages the hotel, sources say.

The asset is being sold by a unit of Fairmont Raffles Hotels International (FRHI), which is controlled by Saudi Prince Alwaleed bin Talal's Kingdom Hotels International and US-based private equity group Colony Capital.

Colony bought the Raffles Hotel and adjacent shopping arcade as part of the entire hotel business of the then-listed Raffles Holdings in 2005 for a total $1.7 billion.

It later combined these assets with the portfolio of Fairmont Hotels & Resorts following the acquisition of Fairmont by Kingdom Hotels and Colony to create a single hotel enterprise, Fairmont Raffles Hotels International, with more than 85 hotels around the globe under the Raffles, Fairmont and Swissotel brands.

Prince Alwaleed holds the majority stake - believed to be about 60 per cent - in Fairmont Raffles Hotels International, with Colony owning the rest.

BT understands that the Raffles Hotel and shopping arcade were valued at about $200 million in the $1.7 billion portfolio acquired by Colony in 2005.

Raffles Hotel, with 104 suites, is on a 999-year leasehold site while Raffles Hotel Arcade next door is on a site with 99-year leasehold tenure starting Dec 15, 1988.

The hotel, which celebrated its 120th year anniversary in September last year, is gazetted a national monument.

It was built by the Sarkies Brothers in 1887 on the site of a 10-room bungalow.

The hotel expanded quickly and soon became the stuff of legend, mentioned in the works of Somerset Maugham and Joseph Conrad.

In the late 1980s, a massive restoration of the hotel, which has a site area of about 190,000 sq ft, was undertaken.

At the same time, a shopping arcade was built next door on a site with a land area of about 108,000 sq ft.

The three-storey arcade has a built-up area of about 306,750 sq ft. The hotel re- opened in September 1991.

Market watchers reckon that the $650 million or so price tag at which the asset is changing hands under the latest deal reflects not just rising hotel values on the back of increasing hotel room rates over the past two years, but also the highly successful food & beverage concepts Raffles Hotel boasts - such as Doc Cheng's, Tiffin Room, Empire Cafe and Long Bar.

It also has a ballroom and a suite of meeting rooms, plus Jubilee Hall, a Victorian-style theatre playhouse.

Raffles Hotel is understood to have been sold through a privately-conducted competitive bidding process.

Fairmont To Sell Raffles Hotel

Siurce : The Business Times, May 8, 2008

Fairmont Raffles Hotels International said on Thursday that it will sell its stake in Singapore's landmark Raffles Hotel to a consortium led by ex-Credit Suisse banker Mark Pawley.

Fairmont, which is controlled by Saudi Prince Alwaleed bin Talal and US private equity firm Colony Capital, did not disclose the selling price, although Singapore media said the figure was around $650 million (US$471.7 million).

Fairmont did not name the members of the consortium. Mr Pawley is CEO of Singapore-based private equity firm Oxley Capital that specializes in real estate, though an executive at Oxley told Reuters the firm was not the buyer.

The Business Times cited unnamed sources as saying the overseas buyer was linked to a European family.

Colony bought the 121-year-old hotel for about $200 million in 2005 as part of a bigger $1.7 billion acquisition of the Raffles Holdings hotel chain, the Business Times said.

Raffles Hotel, a Singapore national monument, was founded in 1887 by four Armenian brothers. In its colonial heyday, its guests included luminaries such as authors Joseph Conrad, Rudyard Kipling and Somerset Maugham.

Fairmont, which operates 88 hotels globally under the Raffles, Fairmont and Swissotel brands, said in a statement it will continue to manage the Singapore hotel after the sale. -- REUTERS

Property Transactions With Contract Dates Between April 21st - 26th, 2008

Two More Slow Quarters For OCBC Ahead, Says CEO

Source : The Straits Times, May 8, 2008

Bank's first-quarter net profit falls 4% to $622m, but still beats analysts' estimates

OCBC Bank has now suffered two straight quarters of sliding profits and may well have to endure more tough times ahead, the bank's chief executive, Mr David Conner, warned yesterday.

'We've had two quarters of very low growth. Can it happen for two more quarters? Yes,' Mr Conner told reporters at a briefing for OCBC's first-quarter results.

Betting on oil, construction: To shore up its finances, OCBC Bank is setting its sights on businesses that are going to be successful despite the difficult times ahead, said chief executive David Conner. These include 'anything that's oil-related' and construction, which is not restricted to developers but extends to 'guys who move dirt', he added.

The reason, he said, was the economic slowdown in the United States. 'It's probably going to be fairly prolonged, perhaps not too deep, but lasting several quarters,' said Mr Conner.

Still, OCBC beat expectations with a net profit of $622 million for the first quarter ended March 31, down 4 per cent from a year earlier. The figure included a $156 million one-time gain from the sale of a stake in The Straits Trading Company.

The result easily beat the $570 million median estimate of seven analysts Bloomberg surveyed.

In the first quarter, OCBC incurred losses of $65 million in securities and derivatives trading. Insurance unit Great Eastern Holdings also suffered a 93 per cent drop in life assurance profits to $7 million.

Mr Conner called the massive drop in life assurance profits 'a very unusual situation' caused by fast-widening credit spreads that peaked this quarter.

This led to mark-to-market losses for investments in Great Eastern's non-participating fund, which eroded earnings from impressive loans growth at OCBC.

The bank, South-east Asia's third-largest lender, saw a 19 per cent rise in loans to corporations and small and medium-sized enterprises, particularly in the building and construction sector.

Mr Conner said that although this figure was 'very robust, it's bound to taper off'.

In the future, he said, OCBC would 'pick and choose to lend to the industry and the players within each industry that we think are going to be successful, even if there are difficult times ahead'.

These include 'anything that's oil-related' and construction, which is not restricted to developers but extends to 'guys who move dirt', he added.

OCBC is also prepared to offer loans to homebuyers on residual deferred payment purchases, even though the popular scheme was scrapped in October last year, leaving buyers of uncompleted homes to make progressive payments rather than delaying the bulk of their payments.

'I don't think real estate has collapsed, nor do I think it will collapse,' said Mr Conner.

He added: 'Rental demand is so strong, and the reality is, most people who purchased on deferred payments will take delivery, and there will be financing opportunities for us.'

Volatile financial markets resulted in a fall in overall non-interest income by 26 per cent to $377 million.

Net interest income grew 26 per cent to $638 million in the first quarter. Net interest margin rose to 2.17 per cent, up from 2.03 per cent in the corresponding period last year.

Annualised earnings per share for the first quarter fell to 58.7 cents from 66 cents a year ago.

OCBC said the value of its collateralised debt obligation (CDO) portfolio of $250 million as at March 31, which had been written down by 85 per cent last year, did not require further allowances in the first quarter.

However, non-interest income was hit by a $16 million mark-to- market loss on its corporate CDO investment portfolio.

Suntec Mall Tenants Seeking Lower Rents

Source : The Straits Times, May 8, 2008

Tenants at the new Galleria see red over low traffic and sales that barely cover rent

FED-UP tenants at the posh new Galleria area of Suntec City Mall say shopper traffic is so low that they can barely cover the rent. Yet, they say, the landlord has not done much to help them out.

Ten tenants, including retail giants Robinsons and Ossia International, have written to ask the landlord, Suntec Reit, to address their continuing losses.

They also said that not enough is being done to promote the upmarket shopping zone.

Ossia executive chairman Joe Goh said: 'We are paying Orchard Road rents. It's too expensive, and the traffic is too low.'

Some retailers have stopped paying rent, another has closed down, while others are trying to find alternative tenants to take over their leases. There are some that are even talking about taking legal action against Suntec Reit.

ARA Asset Management, which manages Suntec Reit, has declined to comment.

The situation at Roots - one of Ossia's two shops at Galleria - mirrored the complaints made by other tenants to The Straits Times.

Business is so poor that sales cannot even cover the monthly rent of more than $30 per sq ft (psf), and the shop now sells other brands to increase sales, said Mr Goh. It is also getting advice on taking legal action against the landlord.

'We are requesting to pay $20 psf,' he added.

Robinsons, which has the Fat Face and Principles outlets at Galleria, is facing a similar plight.

Mr Shia Yew Peck, general manager of finance and administration at Robinsons, said the rent at Fat Face is already 100 per cent of sales.

'Rentals have to be commensurate with the traffic,' he added.

Timberland, which opened a Galleria store in June last year, closed for a few months because of poor traffic, while another shop shut in January after just three months, said some tenants.

Average rents at Galleria, which is near the convention centre, are $24 psf, while the entire mall averages $10.92 psf.

The six tenants who spoke to The Straits Times yesterday are paying between $25 psf and $35 psf, and all are requesting relief in the form of lower rents, rental rebates or a few months' rent waiver.

A typical rent guide would be the equivalent to 15 per cent to 25 per cent of sales, they say.

A comparable situation arose at The Cathay, which opened in 2006. Its landlord gave tenants rental rebates of up to 50 per cent to ride out the slow sales period.

A similar move does not look to be on the cards at the Galleria.

'It's got to the stage where it (property manager) won't even listen to the tenants. All our pleas are ignored,' said Mr Charles Guerrier, managing director of Oosters Belgian Brasserie.

Some tenants were offered rent reductions of 5 per cent, but they said the amount was too low.

A consultant, who declined to be named, said: 'The rentals are actually not very high. It appears high only because of their poor sales. There are a lot of people walking through the mall, but it is just transient traffic.'

Still, there may be better news on the traffic front with the underpass connecting CityLink mall to Suntec City now open. The temporary bridge to Suntec City will be dismantled next Monday.

Meanwhile, at least two hard-pressed tenants have tried to find other retailers to take up their space - but to no avail.

Retailers in trouble

With sales barely covering the rent, tenants are in a bind.

# One shop has closed down.

# Some retailers have stopped paying rent.

# Other retailers are trying to find alternative tenants to take over their leases, without success.

# Yet others are considering taking legal action against the landlord

Deja vu

A comparable situation arose at The Cathay, which opened in 2006.

# Its landlord gave early tenants rental rebates of up to 50 per cent to ride out the slow sales period.

# Galleria tenants are asking for a helping hand in the form of lower rents, rental rebates or a waiver of a few months' rent.

Allco Commercial REIT To Sell Stakes In Two Australian Properties

Source : Channel NewsAsia, 07 May 2008

Allco Commercial REIT said on Wednesday it is putting its stakes in two properties in Australia up for sale and has appointed sales agents for these properties.

The properties are Central Park in Perth and Centrelink Headquarters in Canberra. Together, they are valued at around A$483 million or S$624 million.

CB Richard Ellis and Jones Lang LaSalle (JLL) will sell Allco's 50 percent interest in Central Park through an international Expressions of Interest campaign which closes on July 10.

JLL and Colliers International have been appointed to market each of Allco REIT's and Record Realty's 50 percent interest in Centrelink Headquarters through an international Expression of Interest campaign which closes on June 5.

Central Park is a premium grade office tower and the tallest building in Perth. The property comprises a 47-storey office tower, with a total net lettable area of about 716,000 square feet.

Centrelink Headquarters is a new five-storey Grade A office complex. The property is located within the core of the Tuggeranong Town Centre, one of four town centres within the Australian capital Canberra.

Allco had said that the capital will be redeployed to higher-growth areas in Singapore and Asia. The funds could also be used to repay debts. - CNA/ms

DBS, OCBC Hit By Global Turmoil; Q1 Net Profits Fall

Source : Channel NewsAsia, 07 May 2008

Two Singapore banks on Wednesday reported falls in first-quarter net profit as trading activities took a hit from global financial turmoil.

DBS Group, Southeast Asia's biggest bank, said its net profit in the first quarter ended March 31 dipped 2.0 percent to S$603 million (US$446 million) compared with the previous year.

Singapore's smallest bank, Oversea-Chinese Banking Corp (OCBC), reported a four percent fall in net profit to S$622 million for the first quarter.

DBS said its revenue totalled S$1.56 billion, up 1.0 percent from the same period last year, but it reported a trading loss of S$161 million, compared with a S$171-million net profit the year before, amid a global credit crunch triggered by a crisis in the US housing market.

Income from fees rose 14 percent over the previous year, but was down 7.0 percent from the preceding quarter "due to weaker capital market activities such as wealth management, investment banking and stockbroking," added DBS, which has operations in 16 Asian markets including Hong Kong.

"The results were not bad," David Lum, an analyst at Daiwa Institute of Research, said of DBS.

OCBC said its net interest income rose by 26 percent to S$638 million, boosted by loan volumes and improved interest margins.

"However, volatile financial markets resulted in overall non-interest income falling by 26 percent" to S$377 million, OCBC said, citing a decline in life assurance profits and losses in securities and derivatives trading along with lower gains on investment securities.

"The first quarter 2008 loss included a S$16 million mark-to-market loss on credit default swaps related to the bank's corporate CDO investments," it said, referring to collateralised debt obligations.

Despite the S$16-million loss, the bank's corporate CDO investment portfolio of S$344 million continues to perform, it said.

OCBC added that its asset-backed securities CDO portfolio of S$250 million, written down by 85 percent in 2007, did not require further allowances in the first quarter.

CDOs are securities backed by a range of assets including bonds, loans and their derivatives, including corporate loans, high-grade mortgages, sub-prime mortgages, car loans and credit card debt.

World financial markets have been battered since last August by fallout from a crisis in the US sub-prime, or high-risk, loan sector which forced commercial banks to tighten lending criteria leading to a credit crunch which spread to threaten the global economy.

Banks around the world suffered multi-billion-dollar losses linked to sub-prime loans given to US homebuyers with risky credit histories.

DBS Group chairman Koh Boon Hwee said his bank remains financially strong and well-capitalised.

DBS has a relatively small exposure to the sub-prime sector. It had S$259 million in asset-backed CDOs, and said it has set aside provisions for about 90 percent of that amount.

"We don't expect any further provision charges for CDOs to be significant in the coming quarters," said chief financial officer Jeannette Wong, adding total CDO exposure fell to S$1.44 billion from S$1.5 billion in the fourth quarter.

Both the DBS and OCBC profit figures beat analysts' forecasts but UOB came in below market expectations.

On Tuesday United Overseas Bank Group (UOB) said its net profit in the first quarter rose an annual 2.1 percent to S$529 million, boosted by loan growth.

UOB said its investment in CDOs declined further to S$268 million, including S$82 million in asset-backed securities, while impairment charges increased by 1.8 percent to S$89 million, largely attributed to provision for CDOs.

The bank said it has fully provided for its asset-backed securities CDOs.

Lum said the banks face a scarcity of growth sources given a risk-averse investment environment. - AFP/ac

ARA Asset Management Reports 137% Jump In Q1 Earnings To S$9.2m

Source : Channel NewsAsia, 07 May 2008

ARA Asset Management has posted first-quarter earnings of S$9.2 million, up 137 percent from a year ago.

Revenue more than doubled to S$17.5 million.

The growth was mainly due to higher management fees from its REIT portfolio, as well as higher net property income.

ARA is expecting its asset enhancement initiatives to boost income for the full year of 2008. It is looking to set up REITs in new asset classes.

As at March 31, ARA's total assets under management stood at S$10.4 billion. - CNA/ms