Top property firms’ earnings show sector headwinds
By Low De Wei
(Bloomberg) – Two of Singapore’s largest property companies reported a mixed set of results Wednesday, as high interest rates and a global real estate slowdown weighed on performance in the first half.
CapitaLand Investment saw a 5.7% drop in net income to S$331 million ($251 million) from a year earlier, despite returning to the black after a S$170 million loss in the second half of last year. Revenue edged up to S$1.37 billion.
The company attributed the profit drop to weaker performance in its real estate investment business, which was hit by higher interest expenses and unfavourable foreign exchange rates.
The country’s largest listed developer City Developments saw net income increase by 32% to S$87.8 million in the six months ended June 30, compared with S$66.5 million recorded a year before due to divestment gains. But revenue plunged by 42% to S$1.56 billion.
CapitaLand Investment’s chief operating officer Andrew Lim acknowledged investor “impatience” with the firm’s pivot away from China, saying that it was a delicate process. The firm is committed to doing so through means including divesting assets, he said during a press conference on Wednesday.
CapitaLand Investment is expected to meet its S$3 billion divestment target by the end of the year, chief financial officer Paul Tham said during the briefing. He added that recent disposals in China have been above book value, without elaborating. Globally, he said properties divested in the first half were on average 1%-3% above book value. The firm has made about S$1.6 billion of effective divestments this year up to mid-August.
CapitaLand Investment has suffered particularly due to a major hit from China, which remains its largest market outside of Southeast Asia. The world’s second largest economy, which remains mired in a property slump, made up 35% of the firm’s S$134 billion of assets under management as of the end of June.
That’s been a blow to CapitaLand Group, which listed its investment arm in late-2021 as part of a major restructuring. The move toward an asset-light strategy has yet to pay off. CapitaLand Investment’s shares hovered below its listing price, after falling nearly 2% Wednesday afternoon.
CapitaLand Investment will prioritise opportunities in Asia before the US and Europe, chief executive officer Lee Chee Koon said during the briefing. It doesn’t expect any markets outside of Singapore to take up more than 20% of capital allocation, although he said a timeline for that will only be firmed up later in the year.
COO Lim also said he sees structural opportunities in Australia including in credit, lodging and living segments. The company is looking at Japan lodging and data centers, as well as Korea grade-A offices.
City Developments
“The real estate sector faced considerable headwinds from macroeconomic conditions and higher financing costs,” City Developments’ chief executive officer Sherman Kwek said in a statement.
He said in a press briefing that the company is taking longer to make divestments due to investor caution and unfavourable capital markets. Sagging demand from foreigners for Singapore luxury property is also adding to the challenges.
City Developments, backed by one of the country’s richest clans the Kwek family, announced a share buyback in March, but suffered a blow when its stock was kicked out of MSCI’s global standard indexes in May.
It has also set a target of S$1 billion in divestments this year, although CEO Kwek said it’s more likely to fall short and only hit about S$400 million to S$500 million. He added that the firm is also seeking to offload legacy assets in the UK. The developer only earned about S$141 million from divestments in the first half.
Chairman Kwek Leng Beng said at the same briefing that he believed high interest rates are coming down, when asked why the firm made S$1.1 billion of investments and acquisitions in the first half, including buying a luxury Hilton hotel in Paris. “The world cannot sustain such a high interest rate for a long time,” he said.
Shares of City Developments edged down on Wednesday early afternoon, under-performing Singapore’s benchmark stock index.
(Updates with more details from City Developments throughout)
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