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CDL to report full-year loss as Covid-19 impact lingers

Republic Plaza - CDL.jpg
Republic Plaza, CDL's flagship office property in Raffles Place, is over 96 per cent leased.

CITY Developments Limited (CDL) expects to fall into the red in 2020 with a full-year loss, reversing from a S$564.6 million net profit in 2019, dragged by the prolonged impact of the coronavirus outbreak.

It foresees further impairment losses, and British subsidiary Millennium & Copthorne Hotels (M&C) and China-based joint venture (JV) Sincere Property Group are set to spill some red ink.

Meanwhile, Deloitte & Touche Financial Advisory Services has completed its review into CDL's investment in Sincere and "ascertained that there are good assets that the group can extract further value (from)", CDL said on Monday.

The group noted in a profit guidance that there have been "signs of improvement and some early results of changes to operations, cost structure and marketing".

However, the pandemic's effects are expected to continue into 2021, even with expectations of vaccines being made available.

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Revenue from the group's property development segment in 2020 will be lower than a year ago. Overall profit margins in the first nine months had declined year on year, as more revenue was recognised from mass-market projects on a progress completion basis.

The segment's reported revenue in January to September also decreased by 15 per cent from a year ago, even with a sequential recovery in the third quarter.

The segment sold a total of 710 units with a value of S$914.1 million during the July-September period, up several times from the previous quarter's sales of 174 units valued at S$240.9 million, CDL said in an operational update on Monday.

Penrose, the group's 566-unit JV condominium project in Aljunied, had also achieved "encouraging sales" after its launch in September.

The investment properties segment similarly registered a 14 per cent drop in revenue for the first nine months of this year. This came as CDL extended over S$30 million of property tax and rental rebates to retail tenants in Singapore and overseas. The office rental market's overall sentiment was also affected by the pandemic, CDL noted.

In its operational update, CDL said that the third quarter saw a tapering in the dip in demand for Grade A office space, thanks to the easing of restrictions to allow more employees to return to the office as well as new tenants seizing the opportunity to lease prime space at lower rents.

CDL's Singapore office portfolio had a committed occupancy of 92 per cent as at Sept 30. Its flagship office property in Raffles Place, Republic Plaza, is over 96 per cent leased.

Its retail and food and beverage (F&B) tenants, meanwhile, have almost all reopened for business, except for the entertainment trade. CDL said F&B remained resilient during the latest quarter, with some retailers looking at expansion opportunities. City Square Mall also continued to attract new tenants.

The hotel operations arm, led by wholly-owned M&C, anticipates full-year losses for 2020, given the collapse in global travel and tourism amid the pandemic.

This is despite M&C entities' recovery from a loss to gross operating profit in Asia since May and in New Zealand since June, and M&C's global gross operating profit having been positive since July.

For the January-September period, revenue per available room (RevPAR) tumbled 63 per cent on the year while hotel revenue sank 60 per cent. Global occupancy at its hotels halved to 38.3 per cent, from 74 per cent a year ago.

"Aggressive cost-containment measures, along with marketing efforts to reach local retail customers (in the absence of international air travel), have helped occupancy and room rates to recover from the lows experienced a few months earlier," CDL said.

M&C's occupancy rate at this year-end is expected to be at least half of the 73 per cent achieved last year.

About 11 per cent of the CDL group's global portfolio of 153 hotels were still temporarily closed as at Sept 30, down from 28 per cent in the previous quarter.

The group had provided for impairment losses of S$33.9 million in its unaudited financial statements for the six months ended June, as announced on Aug 13.

CDL said on Monday that it expects to record further impairment losses for its portfolio for 2020, based on preliminary results of an ongoing independent year-end valuation on its portfolio.

This is considering the weaker portfolio performance coupled with market uncertainty from the pandemic, particularly in the hospitality industry, it added.

As for Sincere, in which CDL bought a 51.01 per cent interest this April, the JV is expected to be in a loss position again, in the fourth quarter. The group thus expects to recognise its share of losses from Sincere for the full year.

For the first nine months of 2020, the group had equity accounted for its share of losses in Sincere totalling S$76 million, due to lower sales and handover of properties as a result of the Covid-19 outbreak, financing costs and the release of fair-value uplift for the development properties portfolio.

CDL earlier estimated the provisional amount of the fair value of Sincere's net identifiable assets to be nine billion yuan (S$1.83 billion), as stated in its half-year unaudited financial statements released on Aug 13.

Based on this fair value and the purchase price of 4.39 billion yuan for its stake in the JV, the CDL group had recognised S$43.2 million of negative goodwill for the joint controlling interest in Sincere, and a S$7.7 million mark-to-market gain on the 9 per cent call option which cannot be exercised before July 2022.

The property giant is planning to finalise the assessment of the fair value of Sincere's net identifiable assets before Dec 31, 2020, alongside the finalisation of the valuations of Sincere's portfolio properties, Deloitte's findings and the completion of KPMG's audit.

Despite its expectations of a full-year loss, the group's overall business and financial position remain healthy, with sufficient liquidity to meet operating and financial commitments and weather this crisis, CDL said.

The group's total cash and available undrawn committed bank facilities stood at about S$4.7 billion as at Sept 30.

CDL noted that it does not expect the current pace of recovery to significantly counter the adverse impact on its operations and financial performance for this year.

CDL shares were trading S$0.02 or 0.3 per cent higher at S$7.89 as at 10.42am on Monday.

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