CapitaLand's Q2 profit tumbles due to revaluations

Lower fair value gains from property revaluations sent second-quarter net profit tumbling at real estate firm CapitaLand.

Earnings fell 36.6 per cent to $294 million in the three months to June 30, it reported yesterday, while overall revenue rose 9.7 per cent to $1.13 billion.

The increase in revenue was partly offset by the absence of a one-off fair value gain of $148.4 million a year earlier, arising from the change in use of a development project in China. Excluding that one-off gain, revenue would have risen 28 per cent while operating net profit would have increased 31.8 per cent, the company said.

In China, revenue fell 23.6 per cent to $261.8 million because of lower fair value gains. But if that one-off gain from a change in use were excluded, revenue would be higher, thanks to more homes being handed over to buyers.

The group sold 2,896 units with a sales value of 4.4 billion yuan (S$889.5 million) in the quarter, compared with 2,764 units worth 5.7 billion yuan a year earlier.

Sales value per unit can differ across quarters, given that prices there range from 4,000 to 160,000 yuan per sq m, said CapitaLand China chief executive Lucas Loh.

  • AT A GLANCE

    REVENUE: $1.13 billion (+9.7%)

    NET PROFIT: $294 million (-36.6%)

The firm said 3,300 units are expected to be launched in this half of the year to add to the 2,900 unsold from the first half. However, overall stock available for sale next year will be slightly lower.

In terms of profit contributions, about 7,000 units will be completed in China in this half, of which more than 90 per cent are sold, noted Mr Loh.

CapitaLand group CEO Lim Ming Yan said at a briefing yesterday that the firm is constantly on the lookout for land and is open to buying a company with a portfolio, something it has done before.

Chief financial officer Arthur Lang said the recent depreciation in the yuan - it fell about 6 per cent against the Singdollar in the second quarter - could affect the company in two ways: A 1 per cent depreciation in yuan against the Singdollar would impact net profit by 0.2 per cent, and hit shareholders' equity by 0.9 per cent.

To mitigate this, the company will seek to increase its borrowings in yuan and is looking at the Panda bond market. It is also considering yuan-denominated private equity funds in the medium to long term.

In Singapore, second-quarter revenue rose 18.5 per cent to $377.9 million, thanks to strong sales of Cairnhill Nine and higher rental income from CapitaGreen, which started contributing in April last year.

Development margins for its Singapore projects have fallen from 12.7 per cent in the first half of last year to 8.9 per cent in the same period this year. The company has had a soft launch for its landed housing project, Victoria Park Villas, and will launch it officially after the Hungry Ghost month.

Second-quarter revenue in its malls business fell 11.4 per cent to $148.7 million because of the absence of earnings from Bedok Residences and Bedok Mall. Bedok Mall was sold to CapitaLand Mall Trust at the end of last year.

Tenant sales at its malls here rose about 2.5 per cent in the first half, compared with a fall in retail sales islandwide. This is an indication of the strength of the well-positioned malls, said CapitaLand Mall Asia CEO Jason Leow. In China, tenant sales at its malls rose 7.3 per cent.

Overall, earnings per share was 6.9 cents for the quarter, down from 10.9 cents a year earlier.

Net asset value was $3.95 as at June 30, down from $4.21 as at Dec 31. The counter closed three cents higher at $3.18 yesterday.

A version of this article appeared in the print edition of The Straits Times on August 05, 2016, with the headline 'CapitaLand's Q2 profit tumbles due to revaluations'. Print Edition | Subscribe