Weak £, absence of tax credits pull down CDL Q2 profit 15.1%

Source : Business Times - 15 Aug 2008

Group posts higher profit from property development, rental properties in Q2, H1

AMID a quieter property market, City Developments (CDL) yesterday posted a higher profit from property development and rental properties in second quarter and first half.

But the translation of earnings by its London-listed Millennium & Copthorne Hotels (M&C) at a weakening exchange rate of the pound against the Singapore dollar, plus the absence of substantial one-off tax credits enjoyed by M&C in Q2 last year, resulted in a 15.1 per cent year-on-year drop in Q2 net earnings to $165.2 million.

For the first half, CDL managed a 3 per cent year-on-year increase in net earnings to $330.1 million.

The first-half performance was ‘better than the competition if you strip off their divestment gains and fair-value gains on investment properties’, CDL managing director Kwek Leng Joo said at a results briefing yesterday.

CDL’s bottom line is not affected by fair-value gains - or losses - on investment properties, since after adopting Financial Reporting Standard (FRS) 40, the group has continued to state these assets at cost less accumulated depreciation and impairment losses. Most other Singapore-listed property groups state investment properties at fair value, as allowed under FRS 40.

CDL also said yesterday it will enter into Singapore’s first Islamic Sukuk-Ijarah unsecured financing arrangement, through a proposed $1 billion Islamic multi-currency medium-term notes programme, to tap new markets and investors. This product will provide the group with a ‘diversified, alternative and non-traditional financing stream to further enhance its war chest’, CDL said.

CIMB is arranging the facility.

CDL executive chairman Kwek Leng Beng told reporters: ‘I have been approached by a lot of people in the Middle East to do an Islamic fund.’

On the Singapore residential front, CDL said it plans to launch 400 private homes here in H2 this year, subject to market conditions.

These homes comprise 200 units in the second phase of Livia, a 99-year leasehold condo at Pasir Ris, and 100 units each at The Arte at Thomson and The Quayside Collection at Sentosa Cove.

The group said it has achieved average prices of $1,500 to $1,600 per sq ft (psf) for Shelford Suites and $650-$670 psf for the first phase of Livia.

It also said its diversified land bank - comprising mass-market, mid-tier and high-end sites, amassed over the years at relatively low cost - allows it tailor launches to meet changes in market demands and conditions.

‘Despite today’s high development cost, the group has the option to price its launches competitively while maintaining healthy profit margins, or the option of waiting for the appropriate time to launch so as to maximise profits,’ CDL said.

It also said it has begun construction of the hotel and residential components of The Quayside Collection at Sentosa Cove. However, it is under no pressure to launch the project, especially since its land cost was low.

‘When the group decides to launch, it can book in more profits based on the stage of construction at the time of sales,’ it said.

On the South Beach project being developed by a CDL-led consortium, Mr Kwek said: ‘We already have people knocking on our door. Some of them are interested to buy one block, some are interested to buy one hotel, some interested to manage. We are in no hurry. Our priority is to look at the design and define it much better, and to how to value-engineer to bring the cost down.’

The group said it is confident of remaining profitable in the next 12 months.

Pre-tax profit from property development rose 10.5 per cent year on year for Q2 ended June 30 to $147.8 million. For the first half, it increased 27.4 per cent to $302.9 million.

Pre-tax earnings from rental properties - the group is a major office landlord and owns several malls - rose 76 per cent to $24.5 million in Q2 and 85 per cent to $49.6 million in H1.

However, pre-tax earnings from hotel operations dipped 15.4 per cent to $74 million in Q2 and 2.6 per cent to $126.1 million in H1, due mainly to the weakening of the pound and US dollar against the Singapore dollar.

Group revenue edged up 0.7 per cent to $780.8 million in Q2 but dipped 0.3 per cent to $1.5 billion in H1.