Reassuring - But More Needed From SC Global

Source : The Business Times, November 18, 2008

SC GLOBAL Developments last Wednesday reported a decent set of third-quarter results, posting a 121 per cent jump in net profit to $9.6 million. This was despite weaker sales as the company improved its pre-tax margins with higher selling prices for homes and lower sale costs and expenses.

But what was of more interest to market watchers was the fact that the company also announced that in order to boost its cash in hand, it recently drew some $100 million from its reserve facilities - a move that is a common practice for listed companies here. SC Global cited volatile financial markets and the credit environment in October and November as reasons for the move.

The developer's move also seems to be aimed at alleviating investor concerns about SC Global. 'SC Global is trying to tell the market that it does have the means to raise money if it needs to,' said one property analyst. The company had cash and cash equivalents of $67.4 million at end-September. Assuming that not too much of the newly raised money is spent over the current quarter, SC Global should be able to boost its cash and cash equivalents to well over $100 million by the end of this year.

The company also hinted in its Q3 results that its debt-to-equity ratio - which now stands at 3.38 times - could be reduced somewhat if its stake in Australian-listed AVJennings (AVJ) crosses the 50 per cent mark. Right now, SC Global's stake in AVJ stands at 49.63 per cent, and 'should the group consolidate AVJ as a subsidiary, it is expected to significantly reduce the group's gearing ratio', SC Global said in a filing to the Singapore Exchange (SGX).

SC Global's moves to improve its cash position and assure investors that gearing could be reduced in future are certainly commendable.

However, its stock has been battered, along with the general market, and despite all the good news - better earnings during a quarter where most developers saw profits fall, as well as the securing of $100 million of cash and the news that gearing could be lowered - its share price has not recovered.

SC Global has current liabilities of $13.5 million, while long-term liabilities stand at $1.3 billion, one analyst pointed out. In view of this, $100 million seems like a small amount, he noted. This view assumes that SC Global won't generate significant amounts of cashflow in the future by selling more units in its inventory.

DBS Vickers analyst Adrian Chua pointed out in a note a day after the results that operating cashflow for SC Global continues to be negative in Q3 2008 due to an increase in non-cash working capital, and that its gearing ratio continues to be one of the highest among property developers, with its loans entirely secured against its properties. But financing for the remainder of SC Global's landbank projects at Ardmore and Sentosa have been secured, although construction tenders have not yet been called, he added.

Right now, some analysts are pricing in a worst-case sector scenario of zero sales, credit tightening, asset devaluation, and even potential customer default - which has led to a plunge in SC Global's share price. The stock has lost 76.7 per cent so far this year.

While it is good that SC Global is taking steps to improve its cash position and gearing, whether the developer succeeds in convincing investors depends a lot on how much the general market sentiment improves or worsens going forward - and whether the developer continues to generate cashflow by selling more of its luxury homes.

About 50 Homebuyers Walked Away From Deals In October

Source : The Business Times, November 18, 2008

But trend not likely to escalate as it was a month when bourses tanked

The number of private homes returned to developers shot up last month on the back of a sharp dive in confidence due to the stockmarket crash.

Homebuyers returned 50-odd units to developers in October, compared with 10-plus units each in the preceding month and in October last year. The figures were estimated by BT from statistics on developers' sales released by the Urban Redevelopment Authority (URA) yesterday. The figures exclude executive condos.

October also saw developers launching and selling the lowest number of private homes since URA started making monthly housing sales data available in June last year. Developers sold 112 private homes in October, down about 70 per cent from 376 units in the preceding month and 80 per cent below the 566 units sold in October last year. The 159 private homes developers launched last month was also 79 per cent lower than September and 75 per cent below that in the same year-ago period.

Buyers who returned the 50-plus units last month probably did so before the options were due to be exercised, industry observers reckon. Buyers who walk away from a deal before the option is exercised forfeit a quarter of the 5 per cent option fee, equivalent to 1.25 per cent of the purchase price of the unit.

'The stock market was at its worst in October. So some buyers may have got jittery and decided it was better to forego 1.25 per cent of the purchase price - that's $12,500 for a $1 million property purchase - than to be saddled with uncertainty. They worry that property prices may drop much further in the next six months. So it's a matter of weighing risks, even for people who can afford to take the hit,' said a seasoned property agent.

Another industry observer said another factor for the forfeitures could be if buyers failed to secure the required quantum of housing loan from banks, which have become more cautious in lending. 'Some buyers may also have observed developers trimming prices and got cold feet,' he added.

On a brighter note, he does not expect the number of units returned to developers to keep rising in the months ahead. 'Anybody who buys now must have done his homework. Things are a lot clearer now.'

Agreeing, DTZ executive director Ong Choon Fah said: 'October was an exceptional month with so much stockmarket turmoil and fear all around. Hopefully, we won't get a repeat of this. People will be much more considered when buying homes henceforth and therefore the number of units returned should revert to a more normal situation.'

October saw a total of 14 units returned at Concourse Skyline at Beach Road, 11 units at The Peak @ Balmeg in the Pasir Panjang area and five units each at Silversea at Amber Road, Tresalveo at Marymount Terrace and VIVA at Thomson Road/Suffolk Walk. Nonetheless, all these projects still saw units being sold in October.

CB Richard Ellis (CBRE) said, based on transacted prices, prices have 'remained fairly stable for the past two months, with due consideration that factors such as floor height, orientation and liveable space affect prices'.

'However, it is very likely that the persistent thin volume will have a downward effect on prices. The sluggish sales momentum is likely to remain for the rest of the year as macro factors such as the economic recession and retrenchment will erode consumer confidence,' CBRE's executive director Li Hiaw Ho added. He predicts Q4 may see sales volume of around 500 units, a level last seen in Q1 2003.

Knight Frank director Nicholas Mak said that homebuying sentiment is expected to weaken in the face of economic and job market uncertainties. 'Launches are expected to be held back till at least after Chinese New Year 2009,' he added. The lowest-priced apartment/condo sold in October was a unit at The Linear ($554 psf) while the highest-priced unit was an apartment at Orchard Scotts ($2,407 psf).

Savills Singapore's Ku Swee Yong noted that despite a weak month, The Lakeshore in Jurong and Hillvista in the Hillview area crossed $1,000 psf. The $2,169 psf of land area achieved at Sandy Island on Sentosa Cove is probably the highest price for a landed home in Singapore, he added.

Around 63 per cent of the 112 units sold in October were in Outside Central Region. However, in terms of the 159 units launched in the month, the lion's share (46.5 per cent) were in the Core Central Region.

Sands Has Funds For IR

Source : The Straits Times, Nov 18, 2008

LAS Vegas Sands Corp has enough money to finish Singapore's first casino without help from the city-state's government or billionaire Kwek Leng Beng after the company raised US$2.1 billion (S$3.2 billion), President William Weidner said.

Las Vegas Sands, controlled by billionaire Sheldon Adelson, halted developments in Macau and Las Vegas to focus on finishing a Singapore project and the casino part of its Bethlehem, Pennsylvania, site. -- PHOTO: LAS VEGAS SANDS

Parts of Marina Bay Sands will open later than the end of 2009, as originally scheduled, on construction snags and an 'unprecedented' shortage of raw materials that is now 'opening up', Mr Weidner said in an interview in Las Vegas on Tuesday. 'We have all the money required to be able to complete the project.'

Las Vegas Sands, controlled by billionaire Sheldon Adelson, halted developments in Macau and Las Vegas to focus on finishing a Singapore project and the casino part of its Bethlehem, Pennsylvania, site.

Bloomberg news said the company raised US$2.1 billion last week selling stock and warrants, prompting auditor PricewaterhouseCoopers LLC to remove a warning that there was 'substantial doubt' the company could survive on Monday.

Mr Adelson and Mr Weidner plan to travel to Asia within the next two weeks to assess the company's developments, said Mr Weidner, who is also Las Vegas Sands' chief operating officer.

Raising cash and mothballing developments 'gets us through what we anticipate to be a very rough 18 months approximately ahead of us until we see recovery, somewhere in 2010 or 2011', Mr Weidner told an investor meeting in Vegas on Tuesday.

Resorts World Confirms IR Opening On Track

Source : The Business Times, November 17, 2008

A Singapore integrated resort (IR) developer confirmed on Monday that its project was on track for a phased opening beginning early in 2010.

'It hasn't changed,' a spokesman for Resorts World at Sentosa told AFP.

The spokesman, who declined to be named, was commenting after a minister said in parliament that the country's Genting International had sought government permission for the progressive opening.

'We've always said we will open in stages,' the spokesman said.

Last Thursday the Singapore Tourism Board said the city-state's other IR developer, Las Vegas Sands, had asked to open its Marina Bay Sands complex in stages instead of in one go at the end of next year.

The government is 'considering these requests by Marina Bay Sands and Resorts World at Sentosa with due reference to what they have committed', Senior Minister of State for Trade and Industry, S. Iswaran, told parliament.

'Even as we do so, our expectation remains that each development will open as an integrated resort, and not just as a stand-alone casino,' he added.

Mr Iswaran said Genting cited 'physical on-site constraints' for its progressive opening.

The development is to include a Universal Studios theme park, which the Resorts World spokesman said will require an on-site storage area while the rides are assembled. That accounts for the site constraints, he said.

But the theme park, casino, four hotels and a dining and shopping area are to open as scheduled in early 2010, he reiterated.

Other features of the project will open later, also as previously announced, he said.

Stephen Weaver, the head of Las Vegas Sands Asia, said last week that his company had run into construction difficulties in Singapore.

Las Vegas Sands has announced a halt to some developments in the southern Chinese gambling enclave of Macau due to trouble accessing credit during the global financial crisis.

But the company said completion of the Singapore project remains its top priority. Marina Bay Sands is to include hotel and convention facilities as well as gaming tables. -- AFP

Writedown Math May Sully Developers' Books

Source : The Business Times, November 15, 2008

Bottom lines have already started to shrink in current reporting season

SMALLER home developers have already started cutting prices and this will raise the pressure on other listed property groups to make writedowns. This will whittle bottom lines, which have already started to shrink during the latest quarterly reporting season.

Back in 2001, developers such as CapitaLand and Keppel Land made massive writedowns on their Singapore residential landbanks. Some were made for sites that had breakeven costs below the achievable selling prices. In short, the provision quantums were based on the the difference between breakeven cost and selling price.

So too, this round, as we see achievable selling prices slipping below breakeven costs at certain sites, the writedowns could follow - although developers may drag their feet through Q4. But next year, they may have little choice as more widespread evidence of falling home prices emerges.

A seasoned valuer told BT that he would peg valuations for selling prices of top-end homes as at end-2008 at about 10-15 per cent below end-2007 levels. However for high-end residential land itself, the decline would be higher, at 15 to 20 per cent.

Past property slumps have lasted at least six to eight quarters - so we are in for a rough ride ahead. High-end sites may need to be written down a lot more than mass market sites. The run-up in home prices in 2006-2007 was much more concentrated on the high-end segment, unlike the bull run in 1995/96 when every segment - mass market, mid and high-end - galloped.

Developers who snapped up land at the market peak in 2007 and early 2008 will face much greater pressure for writedowns than those who bought in the early stages of the bull cycle, say, in 2005.

Developers who sold homes on deferred payment schemes may also worry if they have gone on to recognise profits on such units - beyond the initial 20 per cent payment collected from buyers - based on the extent of the project's completion. What happens if these buyers default and return their units? We could potentially see developers having to un-book some of the sales and and profits on such units - until they find new buyers.

Office revaluations

Evidence of office rents slipping has also begun to emerge. Potential investors also demand higher yields on office acquisitions today than 12 months ago. These two factors point to lower office valuations.

Some believe that valuations of office buildings should not decline much next year even if office rents fall because as leases come up for renewal, the new rental rates will still be much higher than the low rates which were locked in previously.

A seasoned valuer disagrees, pointing out that valuers estimate the capital value of an office block based on current market rents being fetched in the building, and then dividing it by a capitalisation rate (which would be the yield that potential investors demand). Even using a discounted cashflow model for valuation, capital values for office blocks are set to decline because future rents are coming off and an adjustment for higher capitalisation rates has to be made given the riskier economic environment.

His estimate is that end-2008 Grade A office capital valuations would be around 10 per cent lower than the end-2007 level. Bigger drops can be expected in 2009 as the economy deteriorates.

Downward revaluations of investment properties like office blocks would hit developers' bottom lines under Financial Reporting Standard 40 for most property groups. The major exception would be City Developments which, upon adoption of FRS 40, has continued to state its investment properties at cost less accumulated depreciation and impairment losses.

Most property groups's bottom lines are likely to deteriorate going ahead, whether they choose to start making residential provisions and downward revaluations of office investment properties in their Q4 2008 report card or delay it till 2009.

However, a seasoned property analyst is not bothered by such writedowns and losses. Property counters are already trading at huge discounts of over 50 per cent to revalued net asset value. The market seems to be pricing in extreme declines of around 50 per cent in property values. The bad news from provisions and writedowns has already been factored in. Developers' indebtedness and cash positions may be the things to watch out for.