CDL reports 1HFY2023 earnings of $66.5 million, down 94.1% year on year due to the absence of significant disposal gains

City Developments Limited (CDL) C09 0.00%has reported earnings of $66.5 million for the first half of 2023 that ending June 30. 94.1% lower than the results of $1.12 billion reported in the same period in the prior year, due to the lack of significant divestment gains for the year ending June 30,.

The $1.12 billion figure was also revised since the planned listing of REITs of CDL’s two commercial properties in the UK didn’t happen. The group has reclassified properties that were put up for sale as well as the liabilities directly linked to the assets to its specific liabilities and assets.

Earnings Per Share (EPS) during the time was 6.6 cents on adjusted basis.

The company’s net profit in 1HFY2023 was affected by a higher interest costs as well as an impairment of $34 million of its two investment properties located in London -the 100 Old Broad Street and Aldgate House. The valuations were computer-generated and were basing them on the higher capitalisation rates.

Lumina Grand EC by CDL Zenith recently acquired the Bukit Batok West Avenue 5 property block for the building of Lumina Grand, an Executive Condominium (EC).

The company’s net profit in 1HFY2023 was affected by a higher interest costs as well as an impairment of $34 million for the two investments properties situated in London -The Aldgate House and 125 Old Broad Street and Aldgate House.

“UK Investment properties are experiencing rough times,” says Sherman Kwek who is the Group CEO of CDL. “We had to endure a 30-50 basis-point cap rate growth. Rents and occupancy are up. However, with the cap rate increase and a decline in value. Hopefully, this will be temporary and we’re seeing brighter opportunities in the near future.”

Kwek says: “All companies and REITs have been impacted by the increase in costs of financing. We have tried to secure our financing costs net, they’ve risen by four times over the course of last year. However, we’re seeing things settling.”

At present, CDL may continue to have higher costs for financing. With only 42% of its debt with fixed interest rates, CDL’s financing cost in 1H2023 nearly increased by more than $220.5 million, up from $199 millions in the 1H2022. This is due to the fact that its cost of borrowing in 1H2023 was about 4.1% compared to just 2.4% for FY2022.

The Group’s CFO Yiong Yim Ming estimates that the cost of debt for the entire FY2023 period could increase to 4.25%. “We thought the figure of 4% would be the top limit for 2023,”” Yiong says. “Now we’re estimating 4.25%.”

As per Yiong, CDL has also offered the possibility of a higher interest rate on land auctions this year. CDL’s gearing goal is an interval: “For gearing, our maximum is 65% and we’re currently at the 57%” Yiong adds.

Revenues for the six months however, jumped to 83.6% y-o-y to $2.70 billion, driven primarily by the company’s property growth segment.

The revenue for that property development segment increased by183.2% y-o-y and was supported by the contribution of CDL’s completely sold Piermont Grand executive condo (EC). Piermont Grand had obtained its temporary occupation permit (TOP) in the 1HFY2023, allowing its profit and revenue to be recognized at the time of conclusion under the accounting rules in place for ECs.

The year is 2009 and CDL is launching two new residential developments, including The 638-unit Tembusu Grand located at Jalan Tembusu, off Tanjong Katong Road (Rest of Central Region or RCR) in April, and four08 units of The Myst at Upper Bukit Timah (Outside Central Region) in July. Tembusu Grand is 58% sold at an average of $2,464 per sq ft, while The Myst is 32% sold for an average of $2,057 psf basing on caveats filed on the 10th of August.

The 2022 September election saw CDL took over the executive condo (EC) site at Bukit Batok West Avenu 5 in a an offer of $336.068 million, or $626 per square foot in plots. The developer plans to start the EC project by 1H2024.

CDL is also planning to develop a mixed-use project in the 2H2024 timeframe. It will be a renovation of Central Square and the old Central Mall and Central Square under URA’s Strategic Development Incentive Scheme.

The public preview for Newport Residences, which is a residential development of 246 units in a mixed-use project situated on Anson Road in Tanjong Pagar is yet to be decided in accordance with CDL. Newport Residences is a redevelopment of the freehold FujiXerox Towers located in the Core Central Region. The preview of the project was thwarted because of Government’s property cooling measures of April 27. The measures saw the additional stamp duty for buyers (ABSD) to foreign nationals rise in 60% as opposed to 30% prior to that.

Revenue from the hotels operations division also grew in 12.4% y-o-y as global revenue per room (RevPAR) increased by 42.7% y-o-y to $151.50 in the wake of continuing strong growth for international tourism. Singapore’s RevPAR increased by 51.5% while the group’s properties in Asia were able to record improvement of 88.3% y-o-y increase in RevPAR. The hotel properties of the group across Asia, Europe and the US have seen RevPAR surpass the levels they had prior to Covid-19.

In the 1HFY2023, CDL’s pretax profit was $179.5 million, which was down from $1.6 billion recorded in the year prior, which was enhanced by significant divestment gains. In the absence of divestment gains or loss of impairment, the business would have benefited from an 48.1% increase in pre-tax profits for the 1HFY2023 year in a comparable manner.

In the course of the year, CDL and its joint venture (JV) associates sold 508 residential units in Singapore with a total sale worth $1.1 billion, a decrease by 712 units during the 1HFY2022 year, with the total worth at $1.6 billion.

The group’s projects that were launched in Australia are seeing an increase in participation.

The majority of the inventory in China is being sold off as well as CDL continues to clean the remaining units within Shanghai, Suzhou, Chongqing and Shenzhen.

For its UK portfolio it is reported that 44% of CDL’s 239 unit Teddington Riverside project is occupied and rent inquiries remain “healthy”. Its former Stag Brewery site in Mortlake, Southwest London received planning approval by the committee on planning of London Borough of Richmond-Upon Thames (LBRuT) in July for its mixed-use rehabilitation plan in July. The plan will be subject to an examination at stage two by the Greater London Authority for approval because of the magnitude of the development.

At June 30 at the time of this writing, as of June 30, CDL’s Singapore office portfolio was at committed occupancy at 95.3%, while its Singapore retail portfolio had an average that was 97.8%.

As per Kwek, CDL is focused on following its “growth through enhancement, transformation and growth (GET) approach” that includes capital recycling as well as asset portfolio optimization. “The record-breaking profit growth this year, fueled by significant divestments gave us a significant amount of funds to make strategic purchases that would improve the portfolio we have,” he adds.

Since the beginning in the new year CDL have acquired “iconic iconic trophy assets” including St Katharine Docks in Central London and The Sofitel Central Brisbane and Nine Tree Premier Hotel Myeongdong II in Seoul. CDL has increased its private rental industry (PRS) portfolio by acquiring two properties in Osaka.

“These acquisitions are in line with the company’s objectives to expand our global presence the land-refill plan for Singapore,” adds Kwek. “In the meantime, we are determined to maximize the value of our existing assets, while also continuing to pursue our fund management goals.”

In the wake of the dividend payment in March as well as a small loss in foreign exchange, net assets value (NAV) decreased to 1.6% y-o-y to $10 per share. The revalued NAV was a bit lower in 1.1% y-o-y to $16.79 as compared to the cost per share of $6.94.

“We have a significant discount compared to RNAV and we are working hard to bridge this gap” Kwek says, although Kwek isn’t sure if he will commit to a buyback plan. Certain investors are of the opinion that in the event of an excess funds, CDL may choose a special dividend.

The cash and equivalents during 1H2023 were as $1.95 billion.

An interim special dividend amounting to 4.0 cents for each share was declared. It is due on the 5th of September.

“Despite the ongoing macroeconomic headwinds as well as the inherent market uncertainty, the CDL group will remain flexible and resilient in dealing with these headwinds,” claims CDL the executive chairperson Kwek Leng Beng.

“Over the last 60 years the company has shown proficiency in leveraging the growth potential,” continues the executive chairman. “During periods of uncertainty, opportunities for strategic acquisitions often arise and we have to be quick to seize opportunities to strengthen our position in the market, increase our portfolio and diversify it, and make use of our expertise to achieve long-term sustainable growth.”

CDL’s shares CDL were trading in the range of $6.99 at the end of business on the 10th of August.