Weak £, absence of tax credits pull down CDL Q2 profit 15.1%

August 15, 2008
Weak £, absence of tax credits pull down CDL Q2 profit 15.1%
Group posts higher profit from property development, rental
properties in Q2, H1
By KALPANA RASHIWALA

AMID a quieter property market, City Developments (CDL) yesterday
posted a higher profit from property development and rental
properties in second quarter and first half.

But the translation of earnings by its London-listed Millennium &
Copthorne Hotels (M&C) at a weakening exchange rate of the pound
against the Singapore dollar, plus the absence of substantial one-off
tax credits enjoyed by M&C in Q2 last year, resulted in a 15.1 per
cent year-on-year drop in Q2 net earnings to $165.2 million.

For the first half, CDL managed a 3 per cent year-on-year increase in
net earnings to $330.1 million.

The first-half performance was 'better than the competition if you
strip off their divestment gains and fair-value gains on investment
properties', CDL managing director Kwek Leng Joo said at a results
briefing yesterday.

CDL's bottom line is not affected by fair-value gains - or losses -
on investment properties, since after adopting Financial Reporting
Standard (FRS) 40, the group has continued to state these assets at
cost less accumulated depreciation and impairment losses. Most other
Singapore-listed property groups state investment properties at fair
value, as allowed under FRS 40.

CDL also said yesterday it will enter into Singapore's first Islamic
Sukuk-Ijarah unsecured financing arrangement, through a proposed $1
billion Islamic multi-currency medium-term notes programme, to tap
new markets and investors. This product will provide the group with
a 'diversified, alternative and non-traditional financing stream to
further enhance its war chest', CDL said.

CIMB is arranging the facility.

CDL executive chairman Kwek Leng Beng told reporters: 'I have been
approached by a lot of people in the Middle East to do an Islamic
fund.'

On the Singapore residential front, CDL said it plans to launch 400
private homes here in H2 this year, subject to market conditions.

These homes comprise 200 units in the second phase of Livia, a 99-
year leasehold condo at Pasir Ris, and 100 units each at The Arte at
Thomson and The Quayside Collection at Sentosa Cove.

The group said it has achieved average prices of $1,500 to $1,600 per
sq ft (psf) for Shelford Suites and $650-$670 psf for the first phase
of Livia.

It also said its diversified land bank - comprising mass-market, mid-
tier and high-end sites, amassed over the years at relatively low
cost - allows it tailor launches to meet changes in market demands
and conditions.

'Despite today's high development cost, the group has the option to
price its launches competitively while maintaining healthy profit
margins, or the option of waiting for the appropriate time to launch
so as to maximise profits,' CDL said.

It also said it has begun construction of the hotel and residential
components of The Quayside Collection at Sentosa Cove. However, it is
under no pressure to launch the project, especially since its land
cost was low.

'When the group decides to launch, it can book in more profits based
on the stage of construction at the time of sales,' it said.

On the South Beach project being developed by a CDL-led consortium,
Mr Kwek said: 'We already have people knocking on our door. Some of
them are interested to buy one block, some are interested to buy one
hotel, some interested to manage. We are in no hurry. Our priority is
to look at the design and define it much better, and to how to value-
engineer to bring the cost down.'

The group said it is confident of remaining profitable in the next 12
months.

Pre-tax profit from property development rose 10.5 per cent year on
year for Q2 ended June 30 to $147.8 million. For the first half, it
increased 27.4 per cent to $302.9 million.

Pre-tax earnings from rental properties - the group is a major office
landlord and owns several malls - rose 76 per cent to $24.5 million
in Q2 and 85 per cent to $49.6 million in H1.

However, pre-tax earnings from hotel operations dipped 15.4 per cent
to $74 million in Q2 and 2.6 per cent to $126.1 million in H1, due
mainly to the weakening of the pound and US dollar against the
Singapore dollar.

Group revenue edged up 0.7 per cent to $780.8 million in Q2 but
dipped 0.3 per cent to $1.5 billion in H1.