CDL to report full-year loss; Deloitte completes Sincere review

Singapore

CITY Developments Ltd (CDL) expects to sink 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 more impairment losses, and British unit 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 while there have been "signs of improvement and some early results of changes to operations, cost structure and marketing", the pandemic's effects are likely to continue into 2021, even if Covid-19 vaccines may soon be available.

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, while the segment's reported revenue also decreased by 15 per cent from a year ago, despite a sequential recovery in the third quarter.

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

The investment properties segment similarly registered a 14 per cent drop in revenue for the first nine months, after it extended more than S$30 million of property tax and rental rebates to retail tenants. The office rental market's sentiment was also affected by the pandemic.

CDL said Q3 saw a tapering in the dip in demand for Grade A office space, as more workers could return to the office and new tenants seized the opportunity to lease prime space at lower rents. Its Singapore office portfolio's committed occupancy was 92 per cent as at Sept 30.

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

For January to September, revenue per available room (RevPAR) tumbled 63 per cent on the year while hotel revenue sank 60 per cent. By the end of this year, M&C's occupancy rate is expected to be at least half of the 73 per cent achieved last year.

The group had provided for impairment losses of S$33.9 million in its results for the half year to 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.

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 Q4. The group thus expects to recognise its share of losses from Sincere for the full year.

For 2020's first nine months, the group had equity accounted for its share of losses in Sincere totalling S$76 million. 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). Based on this fair value and the purchase price of 4.39 billion yuan for its stake, 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, alongside the finalisation of the valuations of Sincere's portfolio properties, Deloitte's findings and the completion of KPMG's audit.

CDL said that despite expectations of a full-year loss, the group's overall business and financial position remained healthy.

Shares of CDL fell S$0.07 or 0.9 per cent to close at S$7.80 on Monday.