CAPITALAND Limited reported a 187 per cent year-on-year surge in net profit after tax and minority interests (PATMI) for the fourth quarter ended Dec 31, 2014 to S$409.4 million, buoyed by higher operating income and revaluation gains from investment properties. This brought its full-year net profit to S$1.16 billion, up 38 per cent from 2013.
Revenue during the quarter grew 67 per cent to S$1.52 billion, thanks to recognition of the S$579 million sale of Westgate Tower, which obtained its temporary occupation permit in October. The group also racked up higher revenue from its shopping malls, serviced residences and development projects in Singapore, which outweighed weaker development sales in China.
Operating PATMI, making up about two-thirds of group net profits, leapt 54 per cent to S$283.6 million in Q4, while net fair value gains for investment properties in Q4 rose 17 per cent to S$461.8 million.
For the full year, operating PATMI jumped 40 per cent to S$705.3 million; net fair value gain rose 6.5 per cent to S$904.5 million.
"There is huge upside potential as only 68 per cent of the group's current investment properties are stabilised assets," group chief executive officer Lim Ming Yan told analysts and reporters. The other one-third of the portfolio is either under development or have opened for less than three years.
CapitaLand has 19 more shopping malls opening over the next three years, with three targeted to open in China this year in Wuhan, Guangzhou and Tianjin. Its serviced residence arm Ascott is slated to open another 2,200 units this year.
Mr Lim said that the group remains confident in the long-term outlook for core markets Singapore and China. Plans are afoot to grow its business in new growth markets of Vietnam, Indonesia and Malaysia, he added. "We are quite clear that we want to grow this business (in Vietnam) into a significant part of the company."
CapitaLand group's chief financial officer Arthur Lang said the group wants to grow its asset under management (AUM) from its current 16 funds worth S$18 billion. It hopes to raise another four to five funds of US$1-2 billion each by 2017-2018 across its strategic business units (SBUs).
These private funds, whereby CapitaLand co-invests in properties with capital partners, will be a key driver of AUM expansion, he said. While Reits "remain a great platform for capital recycling", CapitaLand has the funds business that it can recycle through third-parties, Mr Lang said.
CapitaLand's SBUs mostly performed better in Q4 than a year ago. CapitaMalls Asia achieved a 39 per cent growth in earnings before interest and tax (EBIT) to S$380 million, thanks to its share of profit from the sale of Westgate Tower and higher rental contribution from its shopping malls in Singapore and China.
CapitaLand China posted a 28 per cent drop in EBIT in Q4 to S$94.8 million, as it handed fewer units to homebuyers in China. CapitaLand Singapore's EBIT grew 56 per cent to S$344.3 million, buoyed by its share of profit from the Westgate Tower sale, higher recognition of residential sales and rental revenue from CapitaCommercial Trust (CCT), Westgate mall and Bedok Mall.
But the group sold fewer homes in China and Singapore last year. It moved 4,961 units in China for a total 7.6 billion yuan (S$1.6 billion) in 2014 (from 7,688 units for 8.7 billion yuan in 2013), and 278 units in Singapore for a total S$561 million (from 1,260 units for S$2.4 billion in 2013).
As at Feb 8, the group sold 29 units at the 124-unit Marine Blue during preview for S$1,800-2,000 per square foot.
Given continued softness in the residential market, CapitaLand made an impairment of S$77.4 million for unsold units in Singapore for the full year, by assuming a fall in selling prices for these units in the "high teens" under a worst-case scenario. It made a separate impairment of S$18 million for unsold units in two projects in China. The group also incurred a S$60.1 million impairment for its 40 per cent stake in Surbana International Consultants.
CapitaLand said on Monday that it is selling this stake in Surbana to Temasek Holdings for S$104 million, after Temasek and JTC agreed to seal the merger of their four subsidiaries that included Surbana. Concurrently, CapitaLand is buying the other 60 per cent that it does not already own in CapitaLand Township Holdings - which owns five township projects in China - from Temasek for S$240 million.
The group disclosed that Urban Resort Condominium and The Interlace will incur a respective lump-sum fee of S$1.6 million and S$7 million this year to extend their sales period under Singapore's qualifying certificate rules. There are eight unsold units at Urban Resort and 165 unsold units at The Interlace. "We are not discounting the impact but it is not something that we cannot manage," Mr Lim said, adding that sales are still moving at these projects.
Analysts note that CapitaLand has been "derisking" its residential portfolio and is not seen replenishing its Singapore landbank soon.
DBS vice-president of equity research Derek Tan sees the impairment on unsold units as "a reflection the market is in a stalemate and developers having to lower prices to move transaction volumes".
"Given the majority of earnings are recurring in nature, this year we hope to see some form of capital recycling and redeployment into some new markets they talked about. That will make it a strong year in 2015," he said.
DMG & Partners Securities analyst Ong Kian Lin said he expects CapitaLand's return on equity to be stronger this year on the back of stabilising investment properties such as the malls in China and completion of some development projects.
CapitaLand has proposed a full-year dividend payout of nine Singapore cents, representing a payout ratio of 33 per cent. Shares of CapitaLand added four cents, or 1.1 per cent, to close at S$3.63 on Tuesday.
The earlier version of this story mentioned that CapitaLand has 105 more shopping malls opening over the next three years. It should be 19 instead. The story has been amended to reflect this.