CapitaLand Investment Warns of Profit Drop for 2023 as Valuations Slide

Singapore’s CapitaLand Investment Ltd warned late Friday that adverse economic conditions have put a dent in its earnings for 2023 with the company predicting that its full-year profits will fall well below last year’s levels.

Noting that some of its largest overseas markets, including China, Australia, Europe, the UK and the US have faced “continuing challenges for deal making, fundraising, and operational pressures,” the company said that, together with its subsidiaries, it “expects to report a significant decrease in total PATMI (profit after tax and minority interests) for FY2023 as compared to the previous financial year.”

With the group said to be currently finalising valuations on its property portfolio as of 31 December, the statement added that, “Based on preliminary results, the Group expects fair value losses on its portfolio of investment properties, primarily attributable to the investment properties in the above-mentioned markets.”

The profit warning comes just after a month after CapitaLand had said in its third quarter earnings report that its revenue for the first nine months of the year had dipped 3 percent compared to 2022 levels, with the company pointing out in its statement on Friday that its core operating earnings had not suffered any significant impact from this year’s economic challenges.

Transactions Slow

While CapitaLand does not expect to release its unaudited 2023 financials until February of this year, it had declared in its third quarter update that total transactions for the group during the first nine months of 2023 totalled S$3.8 billion ($2.8 billion), which was down 42 percent from a year earlier.

That dip in deals had helped to bring revenue for its real estate business for the period down to S$1.4 billion, although that 8 percent decline was partially offset by an upswing in fee-driven revenue, primarily from a rebound in its lodging business.

In 2022 CapitaLand Investment had managed to boost its PATMI by 32 percent from a year earlier, thanks to strong fee income and a rebound in lodging and retail as pandemic lockdowns were lifted.

For the first half of 2023 PATMI declined 19 percent compared to the same period a year earlier, as its revenue slid 1 percent, as asset disposals slowed and valuations remained under pressure.

During 2023 CapitaLand’s major overseas markets, including China, Australia and the US have all seen developers marking down asset values as buyers and sellers adjust to higher interest rates. Trades of income-earning property assets in China fell by 25 percent in the first nine months of this year, according to MSCI with Singapore volumes dropping by 29 percent and Australia falling off by 61 percent.

Making Deals Happen

During recent weeks CapitaLand has made some progress on the transaction front with CapitaLand China Trust, which is managed by a unit of CapitaLand Investment, announcing earlier this month that it has agreed to sell a Beijing mall for RMB 849.2 million ($120 million) to a buyer identified by Mingtiandi as a Mongolian investor.

In November CapitaLand Investment announced that it is setting up a S$350 million fund with Thai developer Pruksa Holding to invest in wellness and healthcare-related real estate assets in Southeast Asia.

The Temasek Holdings-backed giant is not the only Singapore-based developer to issue discouraging words in recent weeks, with Frasers Property reporting in its financials for the year ending 30 September that its profit attributable to owners of the company had slid by 81.3 percent compared to the preceding 12 months.

Frasers attributed its profit slide primarily to “non-cash, unrealised net fair value losses on the Group’s commercial properties in the UK and industrial and logistics properties in Australia and the EU, mainly due to higher capitalisation rates amid a high interest rate environment.”