CDL reports 1HFY2023 earnings of $66.5 mil, down 94.1% y-o-y from absence of substantial divestment gains

City Developments Limited (CDL) C09 0.00% has reported earnings of $66.5 million for the 1HFY2023 ended June 30, 94.1% lower than the earnings of $1.12 billion in the same period the year before, due to the absence of substantial divestment gains recorded in the 1HFY2022.

The $1.12 billion was also restated as the proposed REIT listing from CDL’s two commercial properties in the UK did not happen. The group has reclassified the assets held for sale and the liabilities directly associated with the assets back to its respective assets and liabilities.

Earnings per share (EPS) for the period stood at 6.6 cents on a fully diluted basis.

The group’s 1HFY2023 net profit was impacted by higher interest cost and a $34 million in impairment for its two investment properties in London — 125 Old Broad Street and Aldgate House. The valuations were desktop valuations and were based on higher capitalisation rates.

The group’s 1HFY2023 net profit was impacted by higher interest cost and a $34 million impairment for its two investment properties in London — 125 Old Broad Street and Aldgate House (pictured) [Photo: CDL website]

“UK investment properties are going through a very rough time,” says Sherman Kwek, group CEO of CDL. “We suffered 30–50 basis-point cap rate expansion. Occupancy and rents are strong. But with cap rate expansion, there was a drop in valuation. Hopefully, that’s temporary, and we see bright prospects in the future."

Kwek adds: “All companies and REITs have been hit by higher financing costs. Despite our efforts to lock in our net financing costs, they have gone up 4x since this time last year but we see things stabilising.”

For now, CDL may continue to face higher finance costs. With just 42% of debt at fixed rates, its finance cost in 1H2023 more than doubled to $220.5 million, from $99 million in 1H2022. This is because its cost of debt in 1H2023 was around 4.1% compared to just 2.4% for FY2022.

Group CFO Yiong Yim Ming estimates that cost of debt for the whole of FY2023 could creep a tad higher to around 4.25%. “We were hoping 4% was the upper handle in 2023,” she says. “Now we are projecting 4.25%.”

According to Yiong, CDL has also catered for a higher interest rate for land bids this year. CDL’s target gearing is a range: “For gearing, our upper limit is 65%, and we are at 57%”, she adds.

Launched in July, the 408-unit The Myst is 32% sold at an average price of $2,057 psf (Photo: Samuel Isaac Chua/EdgeProp Singapore)

Revenue for the six-month period, however, surged by 83.6% y-o-y to $2.70 billion mainly driven by the group’s property development segment.

Revenue for the property development segment spiked by183.2% y-o-y and was underpinned by the contribution from CDL’s fully-sold Piermont Grand executive condo (EC). Piermont Grand had obtained its temporary occupation permit (TOP) in the 1HFY2023, which enabled its revenue and profit to be recognised in its entirety upon completion under prevailing accounting policies for ECs.

This year, CDL has launched two residential projects, namely the 638-unit Tembusu Grand at Jalan Tembusu, off Tanjong Katong Road (Rest of Central Region or RCR) in April and the 408-unit The Myst at Upper Bukit Timah (Outside Central Region) in July. Tembusu Grand is 58% sold at an average price of $2,464 psf, while The Myst is 32% sold at an average price of $2,057 psf, based on caveats lodged as at August 10.

In September 2022, CDL won the executive condo (EC) site at Bukit Batok West Avenu 5 with a bid of $336.068 million or $626 psf per plot ratio. The developer is planning to launch the EC project sometime in 1H2024.

CDL also intends to launch a new mixed-use development in 2H2024. It is a redevelopment of the former Central Mall and Central Square under URA’s Strategic Development Incentive Scheme.

The preview of Newport Residences in Tanjong Pagar has yet to be determined (Artist's impression: CDL)

The preview of Newport Residences, a 246-unit residential development in a new mixed-use complex on Anson Road in Tanjong Pagar, has yet to be determined, according to CDL. Newport Residences is a redevelopment of the former freehold FujiXerox Towers located in the Core Central Region. The project’s preview was derailed by the government’s property cooling measures on April 27, which saw additional buyer’s stamp duty (ABSD) for foreigners double to 60% from 30% before.

Revenue from CDL’s hotel operations segment also increased by 12.4% y-o-y as global revenue per available room (RevPAR) grew by 42.7% y-o-y to $151.50 on the back of the continued strong momentum in international travel. Singapore’s RevPAR grew by 51.5% while the group’s properties in Asia saw an 88.3% y-o-y increase in RevPAR. The performance of the group’s hotels in Asia, Europe and the US saw RevPAR exceed their pre-Covid-19 levels.

For the 1HFY2023, CDL’s pre-tax profit stood at $179.5 million, down from the $1.6 billion for the 1HFY2022, which was boosted by substantial divestment gains. Excluding divestment gains and impairment losses, the group would have registered a 48.1% increase in pre-tax profit for 1HFY2023 on a like-for-like basis.

During the period, CDL and its joint venture (JV) associates sold 508 residential units in Singapore with a total sales value of $1.1 billion, down from the 712 units sold in the 1HFY2022 with a total sales value of $1.6 billion.

The group’s launched projects in Australia continue to see a steady uptake.

Meanwhile, most of its inventory in China has been sold down, and CDL is continuing to clear its remaining units in Shanghai, Suzhou, Chongqing and Shenzhen.

CDL acquired St Katharine Docks in London for £395 million1 (approximately $636 million) in early March (Photo: CDL)

In its UK portfolio, 44% of CDL’s 239-unit Teddington Riverside project is occupied and rental enquiries remain “healthy”. The former Stag Brewery site in Mortlake, Southwest London received planning consent from the planning committee of the London Borough of Richmond-Upon-Thames (LBRuT) for its mixed-use redevelopment scheme in July. The scheme will move to a stage two review by the Greater London Authority for approval due to the scale of the redevelopment.

As at June 30, CDL’s Singapore office portfolio has a committed occupancy of 95.3%, while its Singapore retail portfolio achieved a committed occupancy of 97.8%.

According to Kwek, CDL is focused on pursuing its “growth, enhancement and transformation (GET) strategy” of capital recycling and asset portfolio optimisation. “The record profit performance last year, driven by significant divestments, provided us with significant cash to make strategic acquisitions that would add value to our portfolio,” he says.

Since the start of the year, CDL has acquired “iconic trophy assets” such as St Katharine Docks in Central London, the Sofitel Central Brisbane and Nine Tree Premier Hotel Myeongdong II in Seoul. The group has expanded its private rented sector (PRS) portfolio with two assets in Osaka.

“These acquisitions are aligned with the group’s goals to advance our global presence in tandem with our land replenishment strategy in Singapore,” adds Kwek. “In addition, we remain focused on extracting value from our current assets while pursuing our fund management ambitions.”

CDL acquired the five-star Sofitel Central Brisbane for A$177.7 million or A$427,000 per key (Photo: CDL)

As a result of a dividend payout in March and a modest foreign exchange loss, net asset value (NAV) declined by 1.6% y-o-y to $10 per share, and revalued NAV inched lower by 1.1% y-o-y to $16.79, compared to CDL’s share price of $6.94.

“We are trading at a huge discount to RNAV, and we are working to close this gap,” Kwek says, although he seems hesitant to commit to a buyback programme. Some investors believe that in the event of excess capital, CDL may choose a special dividend.

Cash and cash equivalents in 1H2023 stood at $1.95 billion.

A special interim dividend of 4.0 cents per share has been declared. It will be payable on Sept 5.

Nine Tree Premier Hotel Myeongdong II in Seoul was acquired in July for KRW 140 billion ($143.9 million) [Photo: CDL]

“Despite the persistent macroeconomic headwinds and inherent market unpredictability, the group will stay agile, resilient and adaptable in navigating these headwinds,” says CDL executive chairman Kwek Leng Beng.

“Over the past six decades, the group has demonstrated adeptness in capitalising on growth opportunities,” continues the executive chairman. “During times of uncertainty, strategic acquisitive opportunities often emerge and we must be nimble to secure opportunities to solidify our market position, augment and diversify our portfolio and leverage our core expertise for sustainable long-term growth.”

Shares in CDL closed at $6.99 at the close of August 10.