CDL surprises shareholders with distribution of CDLHT units

PROPERTY and hospitality group City Developments Ltd (CDL) C09 is proposing to reward its shareholders with a total payout of 31.1 Singapore cents for FY2021, the bulk of it from a special distribution in specie amounting to 11.7 per cent of the units in CDL Hospitality Trusts (CDLHT).

This came as the group swung into the black with a net profit of S$129.7 million for its second half ended Dec 31, 2021, compared with a net loss of S$1.92 billion in the year-ago period. Full-year 2021, the group posted a net profit of S$97.7 million, reversing the net loss of S$1.92 billion in FY2020.

The group plunged into the red in 2020 on the back of a S$1.78 billion impairment on its investment in China-based Sincere Property Group, effectively writing down 93 per cent of its ill-fated S$1.9 billion investment in Sincere. Last September, CDL exited Sincere. CDL saw its hotel operations segment - hit by the Covid-19 pandemic - return to profitability in H2 FY2021, and also expects an imminent rebound in the sector. Kwek Leng Beng, the group's 81-year-old executive chairman, envisages a boost for the hotel business from pent up demand for tourism and corporate travel. "At the same time, to generate sustainable returns for shareholders, we will be agile and opportunistic to redeploy our capital to acquire assets in resilient sectors," he said. Earnings per share stood at 13.6 Singapore cents for the half-year period, reversing from a loss per share of 212.5 cents a year ago.

Revenue for H2 rose 38.4 per cent to S$1.43 billion, from S$1.04 billion a year ago. This was due to higher revenue contribution from its hotel operations segment across all regions in the second half, particularly in the US and Europe.

Elaborating on the rationale for the distribution in specie, which is subject to shareholders' nod, CDL's group chief executive officer, Sherman Kwek, said at an earnings briefing: "Firstly, we want to reward our shareholders (who) have stuck with us through thick and thin. It's been a long journey and the last 2 years especially, as we all know, have been very, very tough years. We've gone through the Covid pandemic. We've gone through...the whole Sincere saga. So I think this is to reward them for sticking with CDL and displaying their confidence in us, and the second one is they can capitalise on the improving hospitality outlook."

For FY2021, the board is recommending the following payouts per CDL share: a final dividend of 8 cents and a special final dividend of 1 cent in addition to the special distribution in specie of 0.159 CDLHT unit (estimated to have an illustrative valuation of 19.1 cents based on a CDLHT unit price of S$1.20). CDL shareholders received a 3-cent special interim dividend declared last year.

"Doing the (distribution in specie of CDLHT units) at this kind of share price level when hospitality is just at the cusp of recovery actually gives great upside for shareholders. So, I would recommend all of our shareholders not to sell their (CDLHT units). They should hold onto them as hospitality recovers...and get to participate and enjoy the upside," said Mr Kwek. The deal will see CDL's stake in CDLHT go down from 38.72 per cent to 27 per cent. Notwithstanding this, CDL said it will remain fully committed as a sponsor of CDLHT and will continue to be its largest unitholder. An advantage of the accounting deconsolidation of CDLHT from the group is that it would allow CDL the potential to book gains on any of its future asset sales to CDLHT should the transaction value exceed the carrying book value of the assets. Moreover, following the accounting deconsolidation of CDLHT, the group is expected to recognise a gain of about S$467.5 million on a pro forma basis.

The group's net gearing (including fair value of investment properties) would also be expected to improve from 61 per cent to 55 per cent on a pro forma basis. CDL highlighted that the proposed distribution in specie is yet another positive outcome of the group's holistic review of its hotel operations segment, following its privatisation of Millennium & Copthorne Hotels (M&C) in November 2019. "It reflects the group's commitment towards capital recycling to enhance efficiency and maximise shareholder value."

M&C completed on Feb 24 the sale of Millennium Hilton Seoul and the adjoining land for about S$1.25 billion, and expects to recognise a handsome net gain of S$528.83 million. The group also expects to realise a significant capital gain from the sale of M&C's stake in Tanglin Shopping Centre via the collective sale of the complex announced earlier this week; the deal is subject to conditions.

CDL closed at S$7.14 on Friday, up 13 cents, while CDLHT ended at S$1.15, up 1 cent.

In the Singapore residential market, the group and its joint venture associates sold homes with a total sales value of S$4.3 billion last year - the highest in the group's history and beating the 2020 figure of S$1.8 billion. This year, the group is poised to launch 3 Singapore residential projects: Piccadilly Grand next to Farrer Park MRT station, an executive condo project in Tengah Garden Walk (both are joint ventures with MCL Land) and 256 residences for sale as part of the redevelopment of the former Fuji Xerox Towers at 80 Anson Road.

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