UPDATE: City Developments reports 4Q18 net profit dropped 55 percent, missing some forecasts

City Developments building and Lau Pa Sat food court in Singapore’s central business district (CBD); taken October 2018.City Developments building and Lau Pa Sat food court in Singapore’s central business district (CBD).

This article was originally published on Thursday, 21 February 2019 at 8:01 A.M. SGT; it has since been updated. 

City Developments reported its fourth quarter net profit dropped 54.7 percent on-year to S$77.95 million on hotel impairments and as revenue dropped on the year-earlier contribution from the Brownstone executive condominium project.

The results missed some analysts’ forecasts.

Revenue for the quarter ended 31 December fell 40.6 percent on-year to S$788.31 million, the property developer said in a filing to SGX before the market open on Thursday. In the quarter, revenue was recognized mainly from the New Futura, Tapestry and Park Court Aoyama The Tower, the company said.

In the executive condominium project, which is a public-private housing hybrid in Singapore, the entire revenue from units sold is only recognized when the project receives its temporary occupation permit (TOP), City Developments said; the Brownstone project received the TOP in the fourth quarter of 2017.

Missing forecasts

For the full year, City Developments posted net profit rose 6.7 percent on-year to S$557.33 million on revenue of S$4.22 billion, up 10.3 percent on-year.

The net profit missed some analysts’ forecasts. Full-year net profit was forecast at around S$593.45 million on revenue of around S$3.68 billion, according to the average of four analyst estimates; the range for the net profit forecasts was S$544.1 million to S$649 million.

But Kwek Leng Beng, City Development’s executive chairman, noted that the company’s revenue for the full year was a record.

“We are confident that when the global issues are stabilised, Singapore is well-poised to recover given its strong fundamentals. The residential property market sentiments should thereby improve with pent-up demand,” Kwek said. “While we continue to strengthen our
foothold in Singapore, we will also look abroad to diversify for growth and manage our risk.”

Hotel impairments

In the fourth quarter, City Developments posted S$94.1 million in impairment losses for hotels, particularly in the U.S., and a S$20.1 million allowance for foreseeable losses for two small-scale developments in Central London, which could be leased out. Excluding those and a gain from the partial divestment of two China projects in 2017, net profit for the quarter would have risen 17 percent, it said.

The hotel operations posted a loss of S$53.2 million in the fourth quarter on the impairments and the full closure of the Millennium Hotel London Mayfair in July 2018 for refurbishment, it said.

“The hospitality industry faced a range of geopolitical and global economic headwinds in 2018, many of which look set to continue in the current year, including U.S./China trade relations, Brexit and increasing minimum wage levels in many jurisdictions,” City Developments said in the filing.

“Operationally, challenges include the shortage of talent – from rank and file to senior management, new hotel supply globally and the growth of Airbnb and serviced apartments,” it said.

Singapore property

For the full year, developers sold 8,795 residential units, excluding executive condominiums, in Singapore, down from 10,566 in 2017, City Developments noted.

“While the decline in sales volume was likely influenced by the property cooling measures implemented in July 2018, on the surface, sentiments have since stabilized,” the developer said in the filing. “The medium to long-term prospects for Singapore are favorable and should bode well for the residential market,” despite sizable supply expected in 2019, it added.

In a January note, JPMorgan had said it expected strong household income growth, “healthy” affordability levels and demand from public housing upgraders would support residential sales volumes.

“The majority of CIT’s landbank is located in well-tested locations and should sell well if priced correctly,” JPMorgan had said.

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