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What Investors Need To Know About CapitaLand Limited’s Latest Earnings

CapitaLand Limited (SGX: C31) released its third quarter earnings on Friday evening. Total revenue came in at S$2.407 billion for the nine months ended 30 September 2014, down 7.5% from the previous year. But despite the drop in sales, CapitaLand still enjoyed a 32.4% surge in operating PATMI (profit from business operations excluding any gains or losses from divestment, revaluation, and impairment) to S$421.8 million during the same period.

Before I take a closer look at the company’s results, it might be good to note that Capitaland had restructured its business with the recent privatization of CapitaMalls Asia. Capitaland, one of Asia’s largest real estate companies, is now divided into 5 Strategic Business Units (SBUs), namely, Capitaland Singapore, Capitaland China, CapitaMalls Asia, Ascott, and Corporate and Others.

Financial highlights

Let’s go through a quick run-down of how the different SBUs fared.

For the first nine months of 2014, Capitaland Singapore didn’t do too well, with EBIT (earnings before interest and taxes) declining 13% year-on-year to S$458.4 million due to lower contributions from development projects. As of 30 September 2014, Capitaland Singapore had sold only 237,000 residential units year-to-date as compared to the 1.151 million units sold in the corresponding period a year ago.

Things are not going to become better anytime soon either as the government has no immediate plans to loosen its property curbs. With this SBU contributing 28.56% of CapitaLand’s total EBIT currently, its future prospects is certainly something for investors to keep an eye on as a bleak residential property market here would mean lower profits for the company.

Meanwhile, Capitaland China put on a strong showing as EBIT grew by 23% to SS$314.3 million on the back of higher share of associates’ operating results and reversal of cost accruals upon finalization. Moreover, the SBU has a strong pipeline of 4,000 residential units ready to be launched in the fourth quarter of 2014. CapitaLand China’s commercial real estate operations in the giant Asian nation also looks promising given that only 25% of its total floor area there are operational assets. The remaining 75% would be steadily developed and be completed from 2016 onwards.

EBIT from the CapitaMalls Asia SBU stayed flat at S$565.1 million as compared to S$572.1 million from a year ago. This is attributable to the absence of portfolio gains and lower fair value gains. These were slightly offset by better operating performance from the malls in Singapore and China. There was also a steady performance by the three real estate investment trusts under CapitaMalls Asia’s umbrella – CapitaMall Trust (SGX: C38U), CapitaRetail China Trust (SGX: AU8U) and CapitaMalls Malaysia Trust – as they displayed growth in net property income and a high occupancy rate of more than 95%.

The Ascott SBU, which deals with serviced residences around the globe, is partially represented by CapitaLand’s ownership and management of Ascott Residence Trust (SGX: A68U). For the entire Ascott SBU, EBIT decreased by 9% to S$201.3 million primarily due to lower fair value gains on its properties. Despite the drop in profit, there are several promising developments with the SBU, such as value-accretive acquisitions across Australia and Japan, and a new strategic partnership with Quest Serviced Apartments, a major Australian-player in the (you guessed it) serviced apartments space.

Lastly, we have the Corporate and Others SBU, where the results from CapitaLand’s investments in parts of Asia like Vietnam and Japan, are included. It’s a tiny part of CapitaLand and generated only S$30.5 million in EBIT for the nine months ended 30 September 2014. But although it’s small, it’s playing a part in conjuring growth for CapitaLand as there was a big jump in the number of residential units sold in Vietnam (1,022 units sold in 2014 so far, as compared to 165 units sold in the corresponding period in 2013).

Financial position

As of 30 September 2014, Capitaland’s balance sheet remains robust with S$2.6 billion in cash and a net debt to equity ratio of 0.60. Furthermore, the company is also well-positioned to continue its business expansion as it has facilities in place which would allow it to draw down S$3.0 billion more in borrowings.

Outlook

The following is what Mr Lim Ming Yan, President & Group Chief Executive Officer of CapitaLand, has to share about the company’s results:

“CapitaLand’s business remains resilient as it continues to focus on building a well-diversified portfolio across integrated developments, shopping malls, serviced residences, offices and homes. With a simplified organisational structure, CapitaLand is well-positioned to execute its strategy and capitalise on the long-term urbanisation and consumerism trends in Asia.”

On a final note, it’s important for investors to keep in mind the correlation between CapitaLand’s fortunes and the economies (or more specifically, the property markets) of Singapore and China as 80% of the company’s total EBIT is derived from the two countries.

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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 James Yeo doesn’t own shares in any companies mentioned.