CDL acquires full control of W Singapore-Sentosa Cove, Quayside Isle

CITY Developments Limited (CDL) acquired the remaining 62.5 per cent stake from the investors of Profit Participation Securities (PPS) 1 structure for S$393 million, giving it full control of W Singapore-Sentosa Cove and Quayside Isle as it seeks to ride on the government’s plans to reshape Sentosa.

At an earnings briefing on Thursday morning, group chief executive officer Sherman Kwek said that the group sees “a lot of value” in W Singapore and Quayside Isle.

He added: “The W Hotel is performing very well, especially for a hotel on Sentosa. We’re planning a small renovation for W, especially the public areas and some of the food & beverage outlets. It fits into our recurring income ambitions as well where we’re trying to grow our foundation of recurring income.”

CDL also has plans to refinance The Residences at W Singapore-Sentosa Cove in view of the subdued residential market conditions in Sentosa.

In China, the group is upping its intended stake in Shanghai Hongqiao Sincere Centre (Phase 2) from 70 per cent to 100 per cent for a total price of RMB1.75 billion (S$344 million).

It is also acquiring a 34-unit freehold residential project in Osaka for JPY 2.01 billion (S$25 million) and three prime freehold mixed development projects in Brisbane and Melbourne for A$25.9 million (S$25 million).

Meanwhile, it is realising S$153.9 million in pre-tax deferred gains from the divestment of Manulife Centre and 7&9 Tampines Grande as a result of the unwinding of PPS 2 structure.

The group has also sold 18 of the 30 units released for sale at its luxury development Nouvel 18 – the sole asset under PPS 3 – at an average selling price of above S$3,300 per square foot.

Responding to a question on whether there has been interest from Hong Kong buyers for its properties in the wake of the protests, executive chairman of CDL Kwek Leng Beng said there has not been too many enquiries so far.

Separately, he also touched on his concerns about potential oversupply from the stream of successful en bloc sites.

“If there’s no measure of control, in terms of release of these en bloc developments done by new developers, I’m afraid there will be price wars. I believe the government is sensible enough to think of ways and means of releasing in stages so you won’t overflood the market,” he said.

Meanwhile, commenting on the group’s residential landbank, CDL’s management said that it is evaluating some of the new tender sites that are coming onstream, and will likely bid for some of the better located ones.

Noting it is not easy to procure sites despite lower land tender prices, Mr Sherman Kwek added: “We still have a lot we’re sitting on. We’ve launched five projects (this year) with another one coming up, Sengkang Grand Residences. We certainly still have enough to last us a good two more years.”

For the second quarter ended June 30, CDL posted a 26.4 per cent drop year-on-year in group net profit to S$162.4 million. Revenue slipped 37.5 per cent to S$850.36 million, down from a restated revenue of S$1.36 billion last year, owing to the timing of profit recognition for its property development segment. Profits from some projects can only be recognised upon completion.

In Q2 2019, the group recognised progressive contributions from The Tapestry and Whistler Grand based on their stages of construction and sales status.

Q2 2018 was boosted by completed projects such as New Futura, Phase 2 of Hong Leong City Center in Suzhou and Park Court Aoyama The Tower in Tokyo.

Earnings per share (EPS) for the quarter under review clocked 17.2 Singapore cents, down from 23.6 cents a year ago.

The board has declared a special interim dividend of six Singapore cents per share – on par with last year – to be paid on Sept 12.

For the six months ended June 30, net profit rose 18.3 per cent to S$361.96 million, even as revenue slid 34 per cent to around S$1.60 billion.

Citi Research maintained a “buy” call on the stock, with a target price of S$10.37. Citi analysts Brandon Lee and Goh Si Xian wrote: “CityDev’s 2Q19 performance underlined a slight pick-up in high-end Singapore residential, with its move to buy back parts of PPS1 and PPS2, combined with potential redevelopment of three Singapore assets – Fuji Xerox Towers, City House and Liang Court – and (the) move to take over Millennium & Copthorne Hotels’ remaining 34.8 per cent stake providing clear evidence of its undervalued net asset value.”

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