Published May 12, 2009

CDL posts 50% drop in Q1 net earnings

Group to continue riding on recovery in mass, mid-market residential segments

By KALPANA RASHIWALA

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CITY Developments Ltd (CDL), which yesterday reported a 49.6 per cent year-on-year drop in group net profit for the first quarter ended March 31, 2009 to $83.1 million, said that property market sentiment is improving and it is 'confident of remaining profitable for the current year'.

The Quayside Isle Collection: CDL may launch the residential portion of the Sentosa Cove project near or post completion

The group reported weaker earnings for property development and hotels, but this was mitigated by a higher profit from rental properties.

The bottom line was better than that of any other listed Singapore property group so far this reporting season, though below most analysts' expectations.

The group said that it has fast-tracked its new condo project on the former Hong Leong Garden Condominium site in the West Coast area. The plan is to prepare the project, which will have an estimated 394 units, for launch by Q4 this year to ride on a recovery in the mass and mid-market residential segments.

The group is also doing the groundwork to prepare other development sites that are likely to be well received by potential buyers, so it will be 'well-positioned to reap first-mover advantage, when the market recovers further'.

Q1 profit before income tax - including CDL's share of after-tax profit of associates and jointly-controlled entities - fell 55.7 per cent for property development and 59.8 per cent for hotel operations, but this was offset by a 46.6 per cent rise for rental properties.

'The strong performance of the rental properties segment is because office rental leases are secured for a longer period of time and the group also benefited by having a diversified tenant mix and locking in higher rental rates from leases that were up for renewal when the office market was more buoyant,' CDL said.

Profit from rental properties, at $36.9 million in Q1 2009, overtook earnings from hotel operations, $20.9 million, reflecting the weaker Q1 performance posted earlier by Millennium & Copthorne Hotels and CDL Hospitality Trusts amid the global hospitality slump.

Property developments that contributed to the Q1 bottom line include City Square Residences, Cliveden at Grange, One Shenton, Shelford Suites, Tribeca, The Solitaire and Wilkie Studio, as well as joint-venture projects The Oceanfront @ Sentosa Cove, Botannia and Ferraria Park.

Giving an update on its South Beach project in Singapore, CDL said that the joint venture partners are in the final stage of negotiations with a consortium of banks on refinancing for the land.

'As this development has until at least 2016 to be completed, the group is taking the opportunity to review and refine the plans for the development to maximise the immense potential of this sizeable prime site, making it even more efficient. Meanwhile, construction cost is expected to come down further,' CDL said.

At Kitchener Road, leasing of remaining retail space at City Square Mall has been challenging amid the financial crisis and recession. Construction of the residential development at The Quayside Isle Collection at Sentosa Cove is slated for completion by 2011. The group may launch the project near or post completion. Property prices at Sentosa Cove have been subdued but the site holds 'immense potential' and the project will be even more attractive when the Sentosa Integrated Resort is completed, CDL said.

CDL has sold more than 250 units at The Arte at Thomson so far.

Group revenue slipped 18 per cent year-on-year to $622.5 million in Q1.

CDL's share of after-tax profits of jointly-controlled entities decreased 69.3 per cent to $17.6 million on the back of lower profit contribution from St Regis Residences and The Sail @ Marina Bay, which obtained Temporary Occupation Permits last year.

The group managed to trim its administrative expenses by nearly $20 million or 15 per cent in Q1 this year over the same year-ago period - due largely to lower salaries and related expenses, and rental expenses incurred for the leasing of hotels from CDL Hospitality Trusts.

Interest expenses fell 28.5 per cent to $18.2 million in Q1 2009.

Net borrowings stood at $3.36 billion at end-March 2009, a tad lower than $3.38 billion at end-December 2008.

The group had cash and cash equivalents of $577.1 million at March 31, 2009, down from $775.9 million at Dec 31, 2008 and $657.5 million at March 31, 2008.

Net cash outflow from financing activities was $265 million for Q1 2009 - compared with net cash inflow of $4.4 million in the same period last year - due to net repayment of loans of $238.7 million in the latest quarter.

Q1 earnings per share slid 49.7 per cent to 9.1 cents. Net asset value per share was $6.11 at end-March 2009, up from $5.97 at end-December 2008.

CDL's share price ended 44 cents lower at $8.05 yesterday.