Due to lower-than-expected economic growth, UOL Group believes that office leasing mood in Singapore is cooling

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UOL Group U14 0.58%has reported earnings of $135 million for the 1HFY2023 that ended in June. This was 64% less than the profits of $371.0 million reported in the same timeframe the year prior.

The lower earnings are primarily due to the of 98% reduction in fair value attributable gains for investment properties. During the time, UOL reported attributable fair value gains on investments properties in the amount of $3.5 million versus $190 million during the same time last year.

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The 1HFY2023 revenue fell by 11% from a year ago to $1.37 billion. The decline in the revenues from the company’s property development offset the increase in hotel operations.

UOL’s property development revenue decreased by 32% year-on-year to $676.3 million, primarily due to smaller contribution of Avenue South Residence, The Tre Ver, Park Eleven Shanghai and partially offset by increased income recognition for progressive projects like AMO Residence and The Watergardens at Canberra.

The hotel business’s revenue was up the equivalent of 66% year-over-year to $341.5 million. This is because almost all the hotels in the group were able to benefit from the increased demand for travel.

The hotels of the group in Singapore particularly, experienced the biggest increases in y-o y. The trend was followed by Parkroyal Collection Kuala Lumpur which opened in June 2022. Pan Pacific London and Parkroyal Darling Harbour in Sydney.

The occupancy rates of its hotels situated in Singapore, Oceania and others were 66% and at 68% and 59% in all three locations. Other markets in the hotel segment are their properties that are located in China, Vietnam, Malaysia, Myanmar and the UK. The list does do not mention the Hotel in Kuala Lumpur which opened on December 1, 2022.

Revenue per room available (RevPAR) of its properties situated in Singapore, Oceania and others was $212 $147 and $89 respectively which is up from $140 in the past, $109 and $51.

UOL’s profit per share fell by 1% per year up to $503.2 million in the 1H2023, and the gross profit margin was 37% which is four percentage points more than a year ago. The increase in gross profit margin was result of higher income from investments as well as better performance of hotel operations.

The company recorded an overall loss for associated and joint venture (JV) companies of $3.4 million, compared to the total profit of $15.8 million the year prior to. This was due to less contribution from Meyer House in Singapore which was sold to the highest bidder, and Mandarin Oriental Singapore which was closed for renovations in March 2023.

On June 30 the firm’s committed occupancy rate for the Singapore office portfolio was 90.0% while occupancy rates for its UK office portfolio stood as 84.5%. The group’s Australian Office portfolio was 100.0% for the period. UOL’s commitment to occupancy for its retail portfolio was 99.1% as at June 30.

The cash and cash equivalents remained at $1.658 billion over the course of the. However, the higher interest rates have increased the average cost of borrowing up to 3.46% in 1H2023, from 1.74% a year ago. However, the gearing ratio is still at 0.26.

“We have been actively engaged in asset management and improvement initiatives for our current commercial portfolio, while also searching for potential acquisitions,” declares UOL Group director of operations Liam Wee Sin.

The month of June saw UOL inaugurated its new 23-storey 347-room Pan Pacific Orchard designed by the highly regarded WOHA Architects. In early July UOL made it clear that the company had closed its 542-room Parkroyal located on Kitchener Road for $525 million to Worldwide Hotels Group, owned by Hotel 81. It’s regarded as the biggest hotels deal that has been made to be completed in Singapore this year to date.

“We constantly review our hotel portfolio in the hope of finding value at the right moment,” says Liam.

On the 27th of June, a consortium comprised of UOL Group, Singapore Land Group (SingLand) and CapitaLand Development submitted a top offer in the amount of $1.206 billion in exchange for the 5-hectare mixed-use site located at Tampines Avenue 11, in an official auction of the land (GLS) auction. It was a 50/50 joint venture between UOL-SingLand as well as CapitaLand. The bid price is set to $885 per plot ratio (psf ppr).

“Our fifty percent% part in the acquisition of a mixed-retail and residential site in Tampines adds to our supply of residential units within The Outside Central Region,” Liam says. Liam.

The group is seeing the office leasing market in Singapore changing to be cautious because of the slower economic growth forecast. The hospitality and retail sectors are the sole bright areas due to the rise in visitor visits. Retail rents are likely to continue to be supported by a limited pipeline of space while the hospitality industry is expected to be beneficial for the hotels of the group due to the continued growth in corporate and leisure travel.

UOL anticipates that its growth will be slowed by property cooling measures announced on April 27. The macroeconomic headwinds will be a factor and the increased demand for new homes over the coming twelve months.

The cooling measures of April 27 included an increase in buyer’s stamp duty (ABSD) on foreign buyers doubling in 60% as opposed to 30% prior to the cooling measures. ABSD was also increased for Singaporean or Permanent Resident (PR) residential property investors was also increased.

With the government increasing supply and a series of launch this year, including 17 launches so far the housing market has “stabilised” Liam says. Liam. “We’re returning to a more normalized level of about 25% to 50% sales.% up to 50% sales over the weekend of launch.”

In the last year the market for housing benefited from the low unsold inventory and a small pipeline of launches following Covid. Thus, new launches for 2022 had the sales rate of 60% or more on the weekend of launch Liam says. Liam.

In 2022, the entire time, developers launched 17 private residential developments (excluding executive condos, also known as ECs) which is an estimated total of 428 units. Developer sales in 2018 amounted 799 units. In the year so far, developers have launched 17 private residential developments with an estimated 6,300 to 6,500 units (excluding the ECs). Developers have sold 4,800 to 5,000 units thus in the first quarter, according to UOL.

In the wake of the latest cooling measure UOL’s Liam estimates that around the 98% in residential property buyers who purchase launch are Singaporeans as well as permanent Residents (PRs).

“Given this market’s showed signs of stabilisation, and prices have slowed It’s probably time to think about extending the ABSD remission period that was available to EC customers to private buyers of condos,” says Liam. He explains that this request to the government was given by Real Estate Developers’ Association of Singapore (REDAS) “several times” in the past.

Presently, EC buyers do not require ABSD in advance and have six months to sell their current HDB flats after receiving the keys for their brand new EC unit, after they have obtained an Temporary occupation Permit (TOP). “This allows them to move seamlessly and meet their goals for upscaling,” Liam explains.

In contrast private condo buyers must to make payments of the 20% ABSD in the first 14 days of purchasing and get rid of the HDB flats in six months. “This could cause disruption to households,” Liam says. “It can also cause a significant dislocation in the residential rental market, which is an issue in the appeal for Singapore as a hub for talent.”

UOL began construction of their 520-unit Pinetree Hill at Pine Grove in the middle of July, and the development has 29% sold for an average cost of $2,383 per square foot. The 99-year leasehold property is situated on Ulu Pandan Road in District 21.

The project in the pipeline to launch is the freehold 180-unit Watten House located on Shelford Road in prime District 11. The brand new, luxurious low-rise condominium is a renovation of the previous Watten Estate Condo which UOL and SingLand together purchased for $550.8 million or $1,723 per month, including the 8% extra gross floor space as well as a development costs.

Liam says that the sale for Watten House will be done by private previews in October “similar as what we did in the case of MeyerHouse”. The 56-unit MeyerHouse located on Meyer Road in prime District 15 was first viewed in March 2019 and completely sold by December 2022.

A mixed-use site located at Tampines Avenue 11 is expected to produce 1,190 housing units and is expected to open in the 2H2024 timeframe. “It will be one of the biggest integrated developments that includes an integrated transport hub and a the direct MRT link,” says Liam.

UOL shares UOL were up 2 cents (or 0.29% up at $6.94 on August 10.