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Most developers see their business hit in 3rd and 4th quarters

Hit by fewer home sales, lower revaluation gains from investment properties, drops in divestment gains - and even the stronger Singapore dollar - property companies largely reported weak results for the second quarter.

And the future doesn’t look rosy either.

Most listed developers have warned that the global slowdown and weakening market could hit their business in the third and fourth quarters. Even the most upbeat are only ‘cautiously optimistic’.

The big three developers - CapitaLand, City Developments and Keppel Land - all posted lower profits for Q2.

CapitaLand, Singapore’s and South-east Asia’s largest developer, said its Q2 profit fell 43.5 per cent to $515.2 million, partly due to lower revaluation gains from investment properties, lower portfolio gains and development profits, and the absence of previous write-back provisions. Analysts called the results disappointing.

City Developments saw Q2 net profit drop 15.1 per cent to $165.2 million. Among other factors, CityDev was hurt by the translation of its overseas hotels earnings at weakening exchange rates due to the strengthening Singapore dollar.

Keppel Land reported that Q2 profit fell 16.4 per cent to $52.7 million as it sold fewer homes in Singapore and abroad.

‘I think the mood is generally very cautious, and this has hurt the developers,’ said an analyst. ‘The trend is likely to continue for the rest of the year.’

Right now, the fear is that sectors that are currently contributing strongly to top lines, such as hospitality, may soon start to weaken.

The Ministry of Trade and Industry’s latest quarterly economic survey showed there are increasing signs that segments within services - including the retail trade and hotels - are showing slower growth.

Property stocks with exposure to those sectors - such as CapitaLand, CityDev and UOL Group, to name just a few - could see contributions from those divisions drop.

For UOL, for example, a 4 per cent increase in Q2 in revenue was due largely to hotel operations, with its hotels in Singapore, Australia and Vietnam performing better.

As for the residential market here, Citigroup has said prices of luxury homes could correct sharply, which could have a negative impact on some developers.

‘Scrapping of the deferred payment scheme and tighter bank financing for investment properties may have also hurt property transactions, which are off some 70 per cent from recent highs,’ Citi noted in a recent report. ‘Some developers may have also over-committed in terms of land purchases during the boom periods.’

Citi analyst Wendy Koh expects a 20-30 per cent price correction for high-end properties from their recent peak, and reckons the mid-tier is likely to decline 10-20 per cent.

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.
 Financial results

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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.

Source : Business Times - 15 Aug 2008

Move is milestone in S’pore’s push to develop alternative mode of investment

City Developments (CDL) is raising $1 billion in Islamic debt through a pioneering notes programme as a means to diversify its sources of financing.

This will be Singapore’s first Islamic Sukuk-Ijarah unsecured financing arrangement by a company, marking a milestone in the Republic’s push to develop Islamic finance as an alternative mode of investment.

These notes are meant for institutional investors. CDL executive chairman, Mr Kwek Leng Beng, said he has already received some interest from investors from the Middle East flushed with petrodollars.

The timing is good now as it opens another source of funding for CDL at a time when banks are cautious when it comes to financing for property projects, said Mr Kwek.

“We don’t actually require a lot of money, this is what I call a war-chest,” he added.

Malaysian bank CIMB is helping CDL with this sukuk or Islamic bond issue. A sukuk has structures developed to meet Islamic transactional rules relating to asset possession, measurements and transactions.

Compared to conventional bonds, there are some restrictions on the type of assets investors can earn money from, explained Mr Kwek.

Sukuk bondholders are paid income derived from assets such as rent from property because Islamic law bans lending for interest.

Assets like a hotel with a bar or a casino are not allowed. CDL’s bond will be backed by office property that does not house banks.

When asked if other local property players may follow suit, Mr Kwek said, “Of course they will. People in Singapore like to follow one another, but it’s up to participants whether they are interested to deal with other parties.”

Source : Today - 15 Aug 2008

Frasers Centrepoint has completed its acquisition of an 18-per-cent stake in Allco Reit and all of Allco Singapore, which manages the property trust. Allco Reit will now be renamed Frasers Commercial Trust following the $180-million deal.

Frasers Centrepoint has now dropped plans to list its own separate commercial property trust. Instead, it will offer its current portfolio of commercial assets, worth about $700 million, as a potential pipeline for the acquired trust to buy.

“We have commenced a strategic review of the properties in the portfolio, which is expected to take three months,” said Frasers Commercial Trust chief executive Low Chee Wah.

“We will be evaluating the feasibility of asset enhancement plans that were announced for the Singapore properties earlier. In the near-term, management will focus on active asset management to improve the property yields of the current portfolio.”

Frasers Commercial Trust has commenced discussions with banks to refinance its existing loans.

Mr Lim Ee Seng, chief executive of Frasers Centrepoint, said: “We are committed to this trust and will dedicate its resources to strengthening its capital structure, enhancing the property portfolio and grow it further.”

Source : Today - 15 Aug 2008

23-storey Fraser Suitesopens in Beijing

While almost everybody else in China was glued to news about the Olympics, Singapore-based Frasers Hospitality yesterday opened its swankiest digs to date in the country, the 357-unit Fraser Suites CBD in Beijing, which cost US$135 million ($190 million).

Singapore President S R Nathan, in the Chinese capital at the invitation of that country’s government to watch the Games, took time out to open the 23-storey, purpose-built serviced apartment building, Frasers Hospitality’s second serviced block in Beijing and its sixth in China.

“China is the world’s biggest growth engine and Beijing is at the heart of this,” said Mr Choe Peng Sum, Frasers Hospitality’s chief executive. “Owning our own property in China puts us in a unique position in this market. Unlike other international brands, we are firmly planting our feet in China and we are here to stay.”

Fraser Suites, in the heart of Beijing’s business district, is part of a mixed-use development that also includes office and residential towers, as well as a retail mall by China’s biggest shipping group, Cosco, from whom Frasers bought the site.

The apartments come in a mix of studios or one- and two-bedroom units, and aretargeted at expatriates working here.

Frasers’ faith in China is amply testified by its plans to open at least another half-dozen properties in the country over the next 18 months. Added Mr Choe: “Our business development team is signing up more properties so that we may have up to 20 properties under the Frasers brand before the close of 2010.”

Besides Beijing, Nanjing, Shanghai and Shenzhen, Frasers will have apartments in Tianjin, Guangzhou, Chengdu, Dalian, Suzhou, Xian, Chongqing, Hangzhou, Wuxi and Hong Kong.

“Demand for our unique bled of hospitality, comfort, luxury and full service has been growing worldwide, particularly in a newly-developing economy like China which is so open to foreign business,” Mr Choe said.

Besides China, Frasers is targeting India, Vietnam, the Middle East and Eastern Europe. It’s currently operates over 5,000 units around the world, making it the second-largest serviced apartments operator in Singapore after CapitaLand’s Ascott Group.

A unit of Fraser and Neave, Frasers Hospitality hopes to 8,500 serviced units in its international portfolio before the decade is out.

Source : Today - 15 Aug 2008