CDL Warns of Substantial Drop in Annual Profit After Posting Record Numbers in 2022

City Developments Ltd (CDL) has warned investors about a “substantial” annual drop in its profit for full-year 2023 as the Singapore property heavyweight faces rising borrowing costs and slowing asset divestments.

CDL late Thursday issued a statement indicating that it expects attributable net profit for 2022 to fall from last year’s record S$1.29 billion ($980 million).

The company’s 2022 performance received a boost from large disposals such as the company’s KRW 1.1 trillion ($1.25 billion) sale of the Millennium Hilton Seoul in Korea, which was completed in February of last year. During this year CDL’s only substantial asset sale has been its $340 million divestment of a luxury residential site in Tokyo in a deal completed during the third quarter.

Despite this year’s profit slide, CDL assured the market that its core business remained stable.

“The global economic outlook remains highly vulnerable to macroeconomic sensitivities, including persistent inflation, a high interest rate environment and geopolitical tensions,” CDL said in the statement. “Nevertheless, the group’s overall business performance and core operating earnings have not been significantly impacted compared to the previous financial year, and the group expects to remain profitable for FY 2023.”

H1 Bottom Line Down 94%

Following the profit warning, which was issued ahead of the company’s expected release of its full year financials in February, the SGX-listed group saw its shares edge down by 0.16 percent to S$6.42 apiece on Friday after closing at S$6.43 a day earlier.

CDL’s attributable net profit plunged 94 percent to S$66.6 million in the first six months of this year from S$1.1 billion in the same period last year, according to its first-half financial results.

During the first half of this year CDL’s sole divestment gain was the S$15.6 million recorded from divestment of strata units as part of the collective sale of the Tanglin Shopping Centre, which was just a fraction of the S$1.4 billion in asset sale proceeds it booked in the same period a year ago.

In the third quarter, its sale of the Tokyo luxury housing site to Japanese condo developer Daikyo was CDL’s only disposal.

In addition to its 2022 sale of the Hilton Millennium Seoul, during last year CDL also took in S$27 million from its sale of a Singapore warehouse and unlocked S$399 million from trimming its stake in SGX-listed CDL Hospitality Trusts.

Also denting CDL’s bottom line this year were the S$34 million provisions made for impairment losses on the company’s two UK investment properties. The firm reiterated that it continues to assess properties subject for impairment review.

The developer has also taken a hit from higher interest rates with CDL’s average borrowing cost in the first half of the year nearly doubling to 4.1 percent from 2.4 percent for the full-year of 2022.

In its core property development business, CDL’s sales fell to S$1.4 billion in value from January through September, which was down 26 percent from the S$1.9 billion it booked in the same nine-month period a year ago.

The company attributed its sales slump in part to a slowdown in Singapore’s private housing market where developer sales of new private homes slid 10 percent in the first 11 months of 2023, compared to the same period one year ago.

Shopping Spree

Despite the profit slide, CDL has been adding to its investment portfolio and landbank this year.

Last month, the company led by tycoon Kwek Leng Beng, together with joint venture partners Frasers Property and Japan’s Sekisui House, won a public tender for a residential site in Singapore’s Toa Payoh area with a bid of S$968 million.

The firm also expanded its overseas portfolio in November by acquiring a mixed-use development in London together with UK developer Galliard Homes and a rental housing project in Manchester.

Back in Asia, the group further boosted its Japanese holdings in September with the acquisition of 25 Tokyo apartment buildings from fund manager BentallGreenOak in a JPY 35 billion deal.

In March this year CDL purchased the St Katharine Docks complex in central London from Blackstone for £395 million ($468 million).