Latest Earnings From City Developments Limited

City Developments Limited (SGX: C09) is one of the Singapore stock market’s largest real estate companies.

It is involved in many aspects of real estate. The company’s a property developer, developing both residential and commercial properties. It also owns hotel properties, serviced apartments, serviced offices, and 61% of London-listed global hotel and hospitality company Millennium & Copthorne Hotels PLC. In addition, City Developments provides facility management services.

With the company announcing its earnings for the quarter and year ended 31 December 2015 yesterday, let’s take a look at how it fared.

Financial highlights

Here’s how City Developments’ important financial figures look like:

  1. For 2015, City Developments recorded revenue of S$3.3 billion, a 12.2% decline from 2014. For the quarter, there was a 1% year-on-year increase in revenue to S$855 million.
  2. Profit attributable to shareholders was up 0.5% to $773.3 million for the full year. On a quarterly basis, an increase of 6.6% to S$410.5 million from the corresponding period a year ago was seen. City Developments’ earnings per share (EPS) saw matching increases of 6.7% to 44.4 cents in the reporting quarter and 0.5% to 83.6 cents in the year.
  3. As a real estate company, the company’s net asset value may be a good proxy for its true economic worth. In 2015, City Developments’ net asset value per share grew by 6.9% to S$9.89.
  4. Cash flow from operations for 2015 came in at S$77.8 million with capital expenditures (including that spent on investment properties) clocking in around S$256 million. This puts the firm in negative free cash flow territory to the tune of S$178.2 million. In 2014 the company reported much higher negative free cash flow of S$644 million (operating cash flow of S$292.1 million and capex of S$936.2 million).
  5. As of 31 December 2015, City Developments had S$3.56 billion in cash and equivalents and total borrowings of $6.5 billion. This is a slight improvement from a year ago when the company had $3.9 billion in cash and equivalents and borrowings of about $6.7 billion. City Developments also ended 2015 with a net gearing ratio (without considering fair value gains on investment properties) of 26%, unchanged from a year ago.
  6. The company’s board has recommended a dividend of S$0.12 per share for the reporting quarter, bringing the total dividend in 2015 to S$0.16 per share, unchanged from 2014.

Business highlights

As you could probably guess, given City Developments’ myriad business interests within the real estate space, the company has a number of different business segments. Here’s how the segments had fared for the reporting quarter and year:

City Developments segment results
Source: City Developments’ earnings release (click table for larger image)

The revenue decline in the property development segment was mostly due to lower revenue recognition in the year. This is due to regulatory requirements where revenue and profit can only be recognized upon receipt of a TOP (Temporary Occupation Permit) for a project. The drop in revenue in the segment had led to a fall in profit. This was partially offset by lower allowances for foreseeable losses for a couple of projects.

Moving onto hotel operations, revenue was relatively stable both in the quarter and year. On the profit front (for both the quarter and year), there was a significant drop due to impairment losses made on two recently acquired hotels. Hotel operations in Asia were also weaker and there were declines seen in the revenue per available room (RevPAR) in some operations in London and New York due to refurbishment works. There was also a substantial one-time gain in 2014 in the segment.

Next, rental properties saw a gain in revenue in the year due to an increase in rental income from a newly opened hotel, the Millennium Mitsui Garden Hotel Tokyo, in December 2014. There was also a one-time gain of S$314 million recognized from three office buildings due to the sale of the properties into an associate of City Developments. This one-time gain was a big reason why the segment’s pre-tax profit in 2015 had more than tripled.

Lastly, the Others segment, which comprises the company’s building maintenance contracts, project management, club operations, laundry services, and dividend income, saw an increase in revenue. This was due to higher management fees and income from a laundry service the group purchased in 2015. The loss in 2015 had decreased from the prior year as there was positive contribution from one of the company’s associates and the absence of an impairment on certain financial assets that were made in 2014.

To sum up the year and what lies ahead, Kewk Leng Beng, City Developments’ executive chairman, had the following comments in the earnings release:

“Over the years, we have set out our plans to mitigate risks through our diversification strategy, building value in new geographies and products. Our 2015 financial performance reflects our ability to navigate through difficult times.

We are well-poised to deploy our strong balance sheet towards investments in a period of market dislocation, capitalizing on available opportunities, while maintaining discipline in our investments. We remain focused on expanding our international property development footprint and growing our funds management platform.”

It seems even though the company’s bottom-line was rescued in 2015 by a huge one off gain from the sale of three properties to an associate company, management is confident of the company’s prospects going forward.

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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 Esjay does not own shares in any companies mentioned.