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CapitaLand taking step back from Singapore housing sector unless price is good

Group posts a 71% jump in Q4 net profit, but retains 12 cts a share dividend to conserve capital for opportunities

CapitaLand group CEO Lee Chee Koon says the group will continue to be disciplined with asset recycling.


CAPITALAND, which is planning to launch two Singapore residential projects this year, does not expect to actively look for opportunities in the sector unless it can get "good pricing", said the group's chief executive and president, Lee Chee Koon.

Speaking at a briefing after the group released its fourth-quarter results, he said: "As a company, CapitaLand, given the fact that we are quite regional ... in nature, and we have various asset classes that we can play; that gives us a lot more options.

"So for Singapore residential, we'll continue to look at it. If we can really find opportunities that we believe will give us good returns, we'll definitely participate, but it is not something that we'll actively look into unless we can get good pricing."

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The group posted a 71.2 per cent rise in net profit to S$475.7 million for Q4 ended Dec 31, up from S$277.8 million in the year-ago period.

The stronger bottom line was supported by better operating performance, higher gains from asset recycling and fair-value gains from revaluations of its investment properties portfolio.

Operating profit after tax and minority interest (Patmi) rose 26.1 per cent to S$213.8 million, due chiefly to higher contributions from residential projects in China and newly acquired/operational properties.

The group posted portfolio gains (including realised revaluation gains relating to the sale of assets) of S$60.1 million for Q4 FY2018, against a portfolio loss of about S$500,000 in Q4 FY2017.

Revaluation gains and impairments climbed to S$201.8 million from S$108.8 million.

CapitaLand's full-year net profit of S$1.76 billion, a year-on-year increase of 12.3 per cent, was the group's highest full-year bottom line in a decade.

Operating Patmi slipped 5.9 per cent to S$872.2 million in FY2018 from S$927.2 million in FY2017.

The 2017 figure included a gain of S$160.9 million from CapitaLand's divestment of 45 units in The Nassim condo to the Wee Cho Yaw-controlled Kheng Leong Company in early 2017.

On a more positive note, CapitaLand posted a 9.5 per cent increase in portfolio gains to S$348.8 million in FY2018; this was boosted by the divestment of a 70 per cent stake in Westgate, which was sold to CapitaLand Mall Trust as well as the sales of Twenty Anson and Bugis Village in Singapore and 20 malls in China.

Revaluation gains and impairments also jumped 67.1 per cent to S$541.5 million.

The figures above mean that cash Patmi (operating Patmi plus portfolio gains) accounted for about 69 per cent of net profit last year.

As to why it was sticking to 12 cents per share for the first and final dividends despite the 10-year-high net profit, CapitaLand's group chief financial officer Andrew Lim said the FY2018 dividend worked out to 41 per cent of the cash Patmi - higher than the group's stated dividend policy to pay out at least 30 per cent of cash Patmi.

Mr Lee highlighted that the group is looking to conserve capital to capitalise on some of the opportunities coming up, including the proposed S$11 billion acquisition of Ascendas-Singbridge (ASB) from a Temasek subsidiary. The deal will be subject to approval by independent shareholders at an extraordinary general meeting in first half 2019.

He also stressed that the group will continue to be disciplined with asset recycling, whether it is to the group's Reits, private equity funds or third parties.

The group's return on equity (ROE) continued to improve to 9.3 per cent for FY2018 from 8.6 per cent in FY2017 and 6.6 per cent in FY2016.

The group, which achieved its 2020 assets under management (AUM) target of S$100 billion two years ahead, will set a fresh target in due course. But Mr Lee stressed that the aim is "not about growing AUM just for AUM's sake".

"We want to make sure that every fund or Reit that we create will be one that will continue to be able to deliver the right level of returns to shareholders who continue to support us."

In China, the group last year sold 4,938 residential units at a value of RMB 12.5 billion (or around S$2.5 billion (FY 2017: 8,769 units; RMB 15.8 billion). Lower sales in 2018 was due to lower inventories available for sales (relative to the previous year) and the deferment of project launches in view of the price cap set by the government.

Nevertheless, CapitaLand is upbeat about the China residential market. Lucas Loh, president (China and Investment Management) in the group, said: "For the cities we are in, we are still fairly optimistic about the outlook for residential because we are mainly in the Tier 1 and selected Tier 2 cities.

"We'll continue to look out for suitable residential land to further replenish our land bank."

The group said in its results statement that as at end-2018, it had sold but not yet handed over about 7,000 units with a value of RMB 15.6 billion. About 70 per cent of this value is expected to be handed over this year.

The group's revenue for FY2018 expanded 21.3 per cent to S$5.6 billion; Q4 revenue rose 34 per cent to S$1.6 billion.

Earnings per share rose to 11.4 Singapore cents for Q4 FY2018 from 6.5 Singapore cents in Q4 FY2017. Net asset value per share increased to S$4.55 as at Dec 31, 2018 from S$4.34 as at Dec 31, 2017. CapitaLand closed four Singapore cents higher at S$3.43 on Wednesday. It released its results before the market opened.

In Singapore, the group plans to get its residential project on the Pearl Bank Apartment site in Chinatown launch-ready in the first half of this year. The residential component of its mixed-development joint venture project in Sengkang is slated to be ready for launch in the second half.