Update: CapitaLand's Q2 net profit up 5.8%, boosted by fair value gains of China properties

CAPITALAND on Wednesday reported that its net profit for the second quarter of 2015 rose 5.8 per cent from a year ago to S$464 million mainly on fair value gains from two of its China properties, partially offset by provision for foreseeable losses.

Revenue increased by 17.8 per cent to over S$1 billion on higher contribution from development projects in China. This was partially offset by lower revenue from development projects in Singapore and Vietnam.

The improved results were boosted by fair value gains which arose from the change in use of three development projects in China, namely The Paragon Tower 5 and 6 and Raffles City Changning Tower 3 as well as Ascott Heng Shan, from construction for sale to leasing as investment properties.

"These projects are located at prime locations in Shanghai and the group has changed its business plan to hold these projects for long term use as investment properties,'' CapitaLand said.

The gains were offset by a provision for foreseeable losses in respect of a development project in China, International Trade Centre in Tianjin, amounting to S$63.6 million and a loss of S$10.8 million mainly from the divestment of a shopping mall in Japan.

In terms of revaluation of investment properties, the group recorded a net fair value gain of S$434.5 million, compared to S$427.3 million a year ago.

CapitaLand recorded higher rental revenue from its shopping mall and serviced residence businesses during the quarter. Collectively, the two core markets of Singapore and China accounted for 79.6 per cent, compared to 72.9 per cent a year ago, of the revenue.

In terms of earnings (EBIT), Singapore and China markets accounted for 81.8 per cent of total EBIT, compared to 78.6 per cent a year ago. Singapore EBIT was S$356.5 million, or 40.7 per cent of total EBIT, compared to S$387.6 million, or 48.5 per cent, a year ago. China's EBIT was S$360.4 million, or 41.1 per cent, of total EBIT, compared to S$241.1 million or 30.1 per cent a year ago.

Singapore's EBIT decreased mainly due to lower fair value gains on revaluation of investment properties and lower development profit from residential projects, partially mitigated by higher contribution from shopping malls and a gain on repurchase of convertible bonds.

In Singapore, CapitaLand sold 37 residential units in Q2 2015, compared to 161 units a year ago. This brings the total number of residential units sold in the first six months of 2015 to 106 units, valued at S$303 million, compared to 195 units, valued at S$340 million, a year ago.

In China, the group sold 2,764 units with a sales value of RMB 5.7 billion or about S $1.2 billion, an increase of 313 per cent in terms of sales value as compared to a year ago, when it sold 1,054 units worth RMB 1.4 billion.

As for CMA, it booked a 6 per cent drop in revenue due to the lower progressive revenue recognition from Bedok Residences in Singapore. Ascott saw improved revenue due to higher fee income and contribution from properties acquired in 2014.

Lim Ming Yan, CapitaLand's President & Group CEO, said while the property group remains focused on Singapore and China as core markets, it is exploring opportunities to expand in growth markets such as Vietnam, Indonesia and Malaysia.

He added that CapitaLand is set to scale up with a target of six new funds up to S$10 billion in assets by 2020.

"The first, a joint venture between our wholly owned serviced residence business unit, The Ascott Limited (Ascott), and Qatar Investment Authority, is a serviced residence fund with an equity commitment of US$600 million (approximately S$809 million). This is part of our plan to grow our assets under management through funds, joint ventures and listed real estate investment trusts (REITs),'' he said.