CapitaLand sinks into the red with S$1.67b H2 loss on revaluation losses, impairments

HEFTY revaluation losses and impairments dragged CapitaLand into its first full-year net loss in almost two decades.

These non-cash items, which largely stemmed from extraordinary events relating to the coronavirus pandemic, also led to the property behemoth falling into the red for the second half of 2020 with a net loss of S$1.67 billion, versus a net profit of S$1.26 billion a year ago.

Fair value losses of investment properties held through subsidiaries totalled about S$1.53 billion in H2 2020, versus a gain of S$571 million a year ago. These were mainly attributable to malls and lodging properties.

CapitaLand also recorded a S$593.6 million impairment of investments in Hong Kong, Australia, the US, the UK and Indonesia during the half year, about 23 times the S$25.9 million impairment in H2 2019.

A handful of assets, which took the brunt of the pandemic's impact, accounted for over half of the revaluation losses last year, CapitaLand noted. These five properties were ION Orchard and Jewel Changi Airport in Singapore, as well as China's Raffles City Chongqing (RCCQ), CapitaMall Westgate Wuhan and Tianjin International Trade Centre.

The valuation of the five assets shrank by 17 per cent on average in 2020, from 2019, far steeper than the 4.7 per cent drop for the portfolio as a whole, said group chief financial officer Andrew Lim at a virtual briefing on Wednesday morning.

"This is not a systemic impact into our property investment business, but rather a much more selected, much more focused impact experienced by a specific number of assets," Mr Lim added.

The fair value losses suffered by the five properties totalled S$886 million, or about 54 per cent of the group's unrealised fair value losses last year.

At end-2020, ION, in which CapitaLand owns a half stake, was valued at some S$3.14 billion, down 8 per cent from S$3.42 billion at end-2019. Meanwhile, Jewel, in which CapitaLand holds a 49 per cent stake, was valued at nearly S$1.4 billion, down 17 per cent from S$1.68 billion in the previous year.

ION and Jewel suffered more aggressive valuation cuts - compared to the retail assets under CapitaLand Integrated Commercial Trust - because both properties were heavily dependent on tourist demand, said Jason Leow, group president, Singapore and international.

The real estate investment trust's assets include suburban malls, which were supported by local consumer spending. On the other hand, ION and Jewel lost a "very important engine" of demand when the flow of tourists was halted due to border restrictions, thus their foot traffic and gross turnover tumbled more drastically than in suburban malls, Mr Leow added.

In addition, newer assets such as CapitaMall Westgate, RCCQ and Jewel, which opened between 2017 and 2019, were still ramping up operations and were thus the most heavily affected.

As for the impairments, the lion's share came from three assets: a Hong Kong-listed associate, Lai Fung; a mixed-use site in Chongqing; and the Quest brand of serviced apartments in Australia.

The total impairments from the trio amounted to about S$688 million, or about 80 per cent of the S$861.4 million of impairments recorded in 2020.

Mr Lim said during the briefing that CapitaLand is "actively looking to divest" its 20 per cent interest in Lai Fung, a China-focused property development and investment firm, because the latter's strategic direction had recently diverged from the group's. This is despite Lai Fung being a profitable company, with CapitaLand having realised "a good share" of these profits as well as cash profits and dividends over the years, he noted.

The group has reclassified the Lai Fung stake, acquired in 2006 for about S$150 million, as an asset held for sale, and thus booked an impairment based on Lai Fung's share price at end-2020 as per accounting rules. The carrying value of this investment was about S$480 million as at Dec 31, 2020, while the stock's market capitalisation was around S$70 million.

CapitaLand said its "originally synergistic" partnership with Lai Fung may not be as relevant today, because the Chinese firm is transitioning towards a more rental-led strategy and expanding into assets related to meetings, incentives, conferences and exhibitions. Such businesses are not central to CapitaLand.

Loss per share stood at 32.4 Singapore cents for the second half of 2020, from earnings per share of 25 cents a year ago.

Revenue for the six months rose by 9.8 per cent to S$4.51 billion from S$4.1 billion a year ago, mainly due to higher handover of units from residential projects in China and Vietnam.

The increase in revenue was partially offset by lower rental revenue from CapitaLand's investment property portfolio amid the pandemic. The group also extended tenant support relief measures by way of rental rebates to impacted tenants mainly in Singapore, China and Malaysia.

For the whole of 2020, CapitaLand recorded a S$1.57 billion net loss, in contrast to a net profit of S$2.14 billion in 2019. The last time it slipped into the red for a full year was in 2001, with a S$281.4 million loss, according to Bloomberg data.

Revenue last year grew 4.8 per cent to S$6.53 billion, while loss per share stood at 31 Singapore cents.

Notwithstanding the "non-systemic" fair value losses and impairments, the group's overall resilience has left it in a "good position to pay a very credible dividend", said Mr Lim.

CapitaLand has proposed a final dividend of S$0.09 per share for 2020. Although that is lower than 2019's dividend per share of S$0.12, it translates to a payout ratio of 52 per cent based on cash profit after tax and minority interests (Patmi), which is above the average of 41 per cent in the preceding four years.

The healthy dividend payout ratio "sends the right signal that CapitaLand remains in a strong, liquid position to be able to reward our shareholders for their support", Mr Lim said.

CapitaLand shares were trading flat at S$3.12 as at 2.20pm on Wednesday.