Stable Profits at City Development Limited Despite Headwinds

City Development Limited (SGX: C09), one of the largest property developers in the region, warned in its latest full year earnings release that all property developers, including the company, would have to “grapple with the uncertain global economic outlook” and “challenges in the domestic [Singapore] landscape”.

However, Mr. Kwek Leng Beng, who’s the Executive Chairman of City Development, noted the company’s “proven track record of resilience and of emerging stronger from these periodic turbulent periods”, referring to the company’s “50 years of experience”.

The company had released its results for 2013 yesterday morning so let’s have a look at how it did.

Performance for the year

For the 12 months ended 31 Dec 2013, City Development experienced a 5.7% drop in revenue to S$3.16 billion. In line with the drop in its top-line, the company’s total pre-tax profits had also declined by 7.1% to S$892 million.

However, as there was less minority involvement in 2013, profits after accounting for tax and minority interests actually increased by 0.7%, ending the year at S$683 million.

During the year, the company had observed a challenging market for the property development business in Singapore mainly due to the government’s cooling measures here.

On the other hand, profits on its rental properties (which include Premium and Grade A office spaces in the central business district of Singapore) had increased, but the growth was mainly from the “unlocking of shareholder value on non-core assets to recycle capital for new opportunities” (translation: the sale of properties to capture more capital for new projects).

Elsewhere, the company’s London-listed subsidiary Millennium and Copthorne Hotels plc had contributed lower profits for the ytear but it was mainly due to a difference between the way Singapore and London treats the accounting for income recognition on the subsidiary’s The Glyndebourne condominium project, which was completed in the last quarter of 2013.

City Development ends the year with a strong balance sheet, with its cash holdings at S$2.87 billion and net gearing ratio (net debt divided by total assets) at only 20%. This is an improvement from the end of 2012, when the company’s cash holdings and net gearing ratio stood at S$2.16 billion and 25% respectively.

For the fourth quarter of 2013, management had proposed an ordinary dividend of S$0.08 per share, a decrease of 38% from the dividend of S$0.13 per share (inclusive of special and ordinary dividends) that was declared in the corresponding period a year ago.

In any case, City Development’s dividends for the whole of 2013 has now been bumped up to S$0.16 per share.

Growth prospects

In 2013, City Development had officially launched seven residential projects, which saw good take up. There are two residential projects in the pipeline to be launched in the first half of 2014, but that would have to depend on market conditions.

The company also gave updates on its South Beach commercial/integrated development project in Singapore, with the 34-storey South Beach Tower slated for completion by the first quarter of 2014. In addition, there’s also the completion of The South Beach to look forward to in 2015. The South Beach is a 654-room luxury hotel concept designed by well-known product and interior designer Philippe Strack.

In London, City Development’s subsidiary Millennium and Copthorne is expected to complete a series of acquisitions worth around S$600 million by the second quarter of the year.

There are also plans to list a subsidiary of Millenium and Copthorne’s associate First Sponsor Capital Limited. The subsidiary, known as First Sponsor Group Limited, is “considering an intial public offering and listing on SGX”  as its parent “has been making good progress with its developments in Chengdu China.”

Change of Roles

In City Development’s earnings release, it also declared that Mr. Kwek Leng Joo will be stepping down from his post as Managing Director but will continue to contribute as Deputy Chairman. Concurrently, Mr. Grant Kelley has also been appointed as the new Chief Executive Office for City Development. Mr. Kelley is appointed to help the company to expand its business overseas and make the most of the growing markets outside of Singapore.

Foolish Summary

Even though there appears to be some slowdown in the properties sector in Singapore, City Development, armed with a strong balance sheet, is not sitting on its laurels and is looking aggressively on how to diversify its operations away from Singapore in order to ensure sustainable earnings.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.