CITY Developments Ltd’s (CDL) executive chairman Kwek Leng Beng says he is confident of seizing opportunities and making acquisitions notwithstanding high interest rates and global uncertainties.
At a briefing after CDL posted a 32 per cent year-on-year rise in first-half net profit to S$87.8 million, the 83-year old said: “I seize the opportunity when everybody gets frightened, and I will zero in. You have to have the courage, have the instinct, and you must be a doer. It’s easier said than done, but I’ve done it for many years. Today I’m confident I can do it again and again.”
“I’m not afraid of the interest rate being high, because I believe it’s coming down. The world cannot sustain such high interest rates for a long time.”
The group announced it made S$1.1 billion of acquisitions and investments in H1 2024. The figure excludes the purchase of Delfi Orchard via a collective sale, which has yet to be completed. Also not counted in the H1 figure is the master developer site in Jurong Lake District; CDL has a 25 per cent stake in a consortium that has submitted two bids at a dual-envelope, concept-and-price state tender that closed on Mar 26.
For the full year of 2023, CDL made S$2.4 billion of acquisitions and investments and S$632.5 million of divestments (including freehold residential land in Shirokane, Tokyo).
As for divestments, Kwek’s son and the group’s chief executive officer, Sherman Kwek, has revised downwards his earlier S$1 billion target for the whole of this year, to about S$400 million to S$500 million. This is because several big divestments underway, both in Singapore and overseas, are requiring more time to negotiate.
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Year to date, CDL has managed to hit S$172 million in divestments, including the sale of strata units at Citilink Warehouse Complex, Cititech Industrial Building and Fortune Centre.
“We have already slowed down the pace of investments. I want to see the divestments kick into higher gear before we start to really deploy capital,” said the younger Kwek.
The group’s net gearing (including fair value on investment properties) climbed to 69 per cent as at Jun 30, 2024, from 61 per cent as at Dec 31, 2023. “If all things go smoothly”, Sherman Kwek plans to bring the figure down to the high-50s by end-2025, though this will also depend on whether the group makes any sizeable acquisitions along the way.
CDL has declared a special interim ordinary dividend of S$0.02 per share, half the S$0.04 payout for H1 FY2023. The cut is “out of prudence”, said Sherman Kwek. “We just want to see how things pan out.”
Since 2018, CDL has worked towards maintaining a one-third dividend payout ratio every year. “That’s not dependent on the divestments, but obviously with any outsized divestments, we’ll be happy to share with our shareholders”.
As part of its divestment strategy, CDL is looking at ways to do bulk disposals of some of its legacy UK residential sites for which it has either been unable to obtain planning approval or where sales of units in projects have been slow. These are located in the Greater London area.
“For some of these sites, we’ve already appointed agents, and offers are coming,” said Sherman Kwek.
He is also looking to accelerate the group’s fund management business, for instance, by seeding its UK commercial properties into either a private or listed vehicle, when interest rates start to ease and capital market conditions improve.
The group’s high gearing ratio has also caused it to pause its share buybacks. Responding to a query at the briefing, Sherman Kwek said: “We’ve never considered delisting CDL, and probably would have no intention of doing so.”
CDL’s revenue fell 42.2 per cent to S$1.6 billion in H1 FY2024 from S$2.7 billion in H1 FY2023 on weaker contributions from the property development segment. In the first half of the previous year, revenue was boosted by full recognition of S$1 billion for the executive condominium project Piermont Grand, which obtained its temporary occupation permit in January 2023.
The increase in net profit was supported by divestment gains as part of the company’s capital recycling efforts.
Earnings per share for the half-year period was S$0.092, an increase from S$0.066 in H1 FY2023.
Two out of three of the group’s segments recorded an increase in H1 revenue. Revenue for the investment properties and hotel operations segments rose 21.3 per cent and 10.8 per cent, respectively.
The increase in revenue for the investment properties segment was mainly due to acquisitions in 2023, such as St Katharine Docks and living-sector assets across markets such as the UK, Japan and Australia.
CDL said that it was confident in the resilience of its Singapore property development segment, with two residential projects planned for launch later this year.
Heavyweight office tenants for Union Square project
One will be the 348-unit Norwood Grand near the Woodlands South MRT station. The other is the 366-unit Union Square Residences at the former Central Mall and Central Square sites at Havelock Road. This project is part of a mixed-use redevelopment named Union Square, which comprises offices, residences, retail and a sizeable co-living component with a hotel licence. “We’ve been able to secure some heavyweight office tenants in advance,” said Sherman Kwek.
In H1 FY2024, the group continued its recovery in the hospitality sector. Its hotel revenue per available room grew 3 per cent on the year to S$156 from S$151.50. This was supported by the recent acquisition of Sofitel Brisbane Central Hotel in December and the 268-room Hilton Paris Opera.
“The iconic freehold property has seen strong demand with notable high occupancy and average room rate, especially during the Paris 2024 Olympics,” the group said, referring to the Hilton Paris Opera.
Commenting on CDL’s H1 performance, Sherman Kwek added: “The real estate sector faced considerable headwinds from macroeconomic conditions and higher financing costs, impacting the group’s financial performance.”
“The potential for interest rate cuts by the US Federal Reserve will bring much relief and further strengthen our capital position,” he added.
Shares of CDL closed 0.2 per cent or S$0.01 lower at S$5.21 on Wednesday. The company announced its results before the market opened.
