CDL swings back into the black with record S$1.1b profit in H1

The group is actively looking at share buyback and forging ahead with expansion into other segments of the accommodation spectrum

CITY Developments Limited (CDL) on Thursday (Aug 11) posted a record net profit of S$1.1 billion for the first half ended Jun 30, reversing from a net loss of S$32.1 million recorded in the same period last year.

This was mainly due to the divestment gains from the sale of Millennium Hilton Seoul (S$496.2 million) and Tagore 23 warehouse in Singapore (S$27.3 million), as well as the total gain of S$492.4 million (inclusive of negative goodwill) from the group's deconsolidation of CDL Hospitality Trusts (CDLHT), which resulted from the distribution in specie of CDLHT units in May 2022.

Excluding the above 3 items, net profit for H1 2022 would have been S$110.3 million.

The board has proposed a special interim dividend of S$0.12 per share, which is 4 times' last year's special interim dividend of S$0.03 per share.

The S$1.1 billion net profit was the highest net profit achieved since CDL's inception in 1963, it said in a statement. The results translate to earnings per share of S$1.235, against a loss per share of S$0.042 in the corresponding period a year ago.

Revenue was up 23.5 per cent to S$1.5 billion, from S$1.2 billion. CDL said the increase in revenue was mainly due to the hotel operations segment, although the group's property development segment continued to lead contributions.

With the easing of border restrictions and supported by pent-up demand for travel, the group's hotel revenue per available room (RevPAR) grew 110.4 per cent, led by the Europe and US markets, which posted strong improvements in occupancies and average room rates. However, the performance of the group's hotels in North Asia was still impacted by travel restrictions due to the resurgence of Covid-19 infections.

CDL executive chairman Kwek Leng Beng said: "With post-pandemic travel fuelling continued recovery, we expect hospitality to be a star performer for the rest of the year. As Covid-19 concerns wane, our hospitality portfolio will be a valuable growth engine contributing meaningfully to the group's recurring earnings."

The group is also "actively discussing" share buybacks. At a results briefing on Thursday (Aug 11), CDL's group chief executive officer, Sherman Kwek, said: "We are still putting the pieces in place. We hope in the near future that we can delight analysts and shareholders by buying our shares, which demonstrates that we want to own more of our own business, because we believe that our assets are undervalued, we believe our share price is undervalued."

The counter is trading below its net asset value (NAV) and revalued net asset value (RNAV).

CDL ended 1 cent lower at S$8.24 on Thursday. It released its H1 results before the market open. CDL's NAV per share rose to S$10.18 as at Jun 30, 2022 from S$9.28 as at Dec 31, 2021. Over the same period, its RNAV per share (factoring in fair-value gains on investment properties) climbed to S$16.37 from S$15.70. If revaluation surpluses on its hotel properties are also included, the group's RNAV per share increased to S$18.86 from S$18.61.

Meanwhile, the property development segment contributed 41 per cent of total revenue for the first half, supported by "well-sold" Singapore projects like Amber Park and Irwell Hill Residences, as well as overseas projects such as Shenzhen Longgang Tusincere Tech Park and New Zealand land sales.

"Notably, this does not include revenue from joint-venture projects such as Boulevard 88 and CanningHill Piers, which are equity accounted for," the group said.

Sherman Kwek said that the Singapore residential property market remains resilient, notwithstanding rising mortgage rates, citing strong household savings and low unemployment. His father, Kwek Leng Beng, too highlighted that "property investment, when viewed with a medium- to long-term perspective for value appreciation, is a well-established hedge against inflation".

The group will be selective in replenishing its residential land bank here. "But the good news is that at least we have a good inventory and land bank to last us for the next 2 years or so, with more than 2,000 Singapore residential units in the launch pipeline," said Sherman Kwek. "This reduces the pressure on us to have to engage in a bidding frenzy in order to replenish our land."

In addition to building a "solid development pipeline", the group said it will keep its focus on strengthening its recurring income streams. As part of this strategy, CDL is pressing ahead with building up its exposure to other segments of the accommodation spectrum, or "living sector". These include the private rented sector (PRS); a PRS asset is basically a residential building with the apartments leased out individually. The group has been building up its PRS portfolio overseas, including in Japan, the United Kingdom, the United States and Australia.

It also has a presence in other segments of the living sector, such as senior housing and affordable housing. In June, CDL entered the purpose-built student accommodation (PBSA) segment, acquiring a 19-storey, 505-bed facility in Coventry, UK.

The group embarked on the living-sector strategy in 2018, but still needs a lot more scale to achieve cost efficiencies, said Sherman Kwek. Building up a sizeable portfolio in, say, the PRS segment, will also open the potential of seeding its assets into a Reit (including possibly its sponsored stapled group CDLHT, which has broadened its investment mandate to include PBSA and PRS) or into a private fund.

"Investing in the living sector will open up more avenues for us and bolster our fund-management efforts," said Sherman Kwek.

Giving an update on its plans to launch a Singapore-listed Reit holding UK office assets, CDL noted that market sentiment for initial public offerings of Reits in Singapore has been hit by rising interest rates. The group continues to monitor market conditions and will decide in due course on whether to proceed with the planned listing, it added.

On a more positive note, the group is expected to realise a significant capital gain upon the completion of the collective sales of Tanglin Shopping Centre and Golden Mile Complex; it has held strata units in these buildings over a long period at low book value.

Sherman Kwek also highlighted the group's own asset base, especially within its privatised hotel arm, Millennium & Copthorne, that can be used selectively as the group's future land bank for redevelopment. The group owns a sizeable collection of hotels across the world. "For some of them, the highest and best use may not be a hotel any more. Or it may not be just a hotel; it could be a mixed-use (asset) or even student accommodation. So actually, we have a very, big latent land bank in our hospitality portfolio too, and that's thanks to our chairman for accumulating these assets over so many years, so many decades."

In June this year, CDL partnered real estate investment group HThree to acquire 330 Collins Street, a freehold office tower in Melbourne, for A$236 million (S$226.7 million). CDL's effective stake in the asset is over 60 per cent via direct and indirect investments. .

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