City Developments Limited (CDL) has recorded a loss of $1.917 billion for the FY2020 ended December from earnings of $564.6 million a year ago.

The significant loss was due to the group’s decision to write down 93% of its total investment in the Sincere Property Group, which amounts to $1.78 billion. The group says the loss has “distorted” the group’s results for the 2HFY2020 and FY2020.

Furthermore, the group says it is “cautious” that Sincere Property may face “significant liquidity challenges” considering Sincere’s debts in the next 12 months and China’s “three red lines” policy to cap borrowings for real estate developers.

This comes as no surprise, as the property group, on Jan 21, announced that it expected to make provisions for a “material impairment loss” on its investment in the China real estate group at the time.

CDL, on Feb 22, announced that it has begun the process of monetising its assets in Sincere.

CDL, on April 15, 2020, acquired a 51.01% joint controlling interest in the Sincere Property Group – a decision which caused three directors to resign later in the year, including Kwek Leng Peck, cousin of CDL’s executive chairman Kwek Leng Beng.

Excluding its one-off, non-cash impairments for losses attributable to its joint venture (JV) investment in Sincere Property, impairment losses for CDL’s hotels and investment properties of $99.5 million, as well as allowance for foreseeable losses for development projects of $35.0 million, CDL would have registered profit after tax (PAT) of $120.8 million for the FY2020 and $83.0 million for the 2HFY2020.

SEE:City Developments secures $250 mil sustainability-linked loan from DBS

Notably, the group had made impairment losses of $33.9 million on its hotel properties in 1HFY2020.

For the 2HFY2020, the group logged losses of $1.921 billion, from earnings of $202.6 million the year before.

Revenue for the 2HFY2020 dropped 43.5% y-o-y to $1.03 billion, while FY2020 revenue declined 38.5% y-o-y to $2.11 billion. The lower figures were due to lower contributions across all segments, especially the hotel operations segment, which accounted for 81% of the decline.

In FY2020, the group’s hotels recorded lower revenue per average room (RevPAR) and occupancies due to the travel restrictions imposed. Investment properties saw lower revenue due to the rental rebates granted to tenants for buildings in Singapore and Thailand.

Hotels under master lease arrangements under CDL Hospitality Trusts (CDLHT) also saw lower rental income.

Gross profit for the 2HFY2020 dropped 55.9% y-o-y to $382.5 million, while FY2020 gross profit fell 49.4% y-o-y to $828.9 million.

2HFY2020 gross profit margin (GPM) stood 10 percentage points lower at 37% during the same period, while GPM for the FY2020 fell 9 percentage points to 39%. The lower GPMs were due to allowance for the $35.0 million in foreseeable losses made on development properties, in addition to the thinner profit margins seen for Singapore residential projects that are still under construction.

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The hotel operations segment saw a more compressed margin led by lower room rates seen in most countries.

Other income for the 2HFY2020 surged to $76.5 million compared to $13.6 million a year ago due to the accounting of $107.9 million on the gain on disposal of Novotel Clarke Quay, as well as a $9.4 million gain on disposal for Novotel Brisbane. This was offset by a reversal of negative goodwill of $43.2 million on the acquisition of the 51.01% controlling interest in Sincere Property, which was previously recorded in 1HFY2020.

FY2020 other income fell 1.8% y-o-y to $172.0 million, which included divestment gains of $26.0 million and $23.5 million from the disposal of Millennium Hotel Cincinnati and the disposal of CDL’s equity stake in Sceptre Hospitality Resources (SHR) respectively.

In 2HFY2020, CDL recorded additional impairment losses of $53.6 million and $12.0 million on its property, plant and equipment and investment properties respectively, bringing the total impairment loses for the FY2020 to $87.5 million on property, plant and equipment, and $12.0 million on investment properties. This compares to the respective losses of $60.4 million and $2.4 million in FY2019.

In 2HFY2020 and FY2020, CDL also provided a $300 million impairment loss on the loans granted to Sincere Property and a $288 million impairment loss on the US$230 million ($303.6 million) USD bonds issued by Sincere Property, which CDL had subscribed to. In addition, the group recognised impairment loss on the interest receivables on the loans and bonds amounting to some $12.3 million and $11.6 million respectively.

In 2HFY2020 and FY2020, CDL saw fair value loss on financial derivatives due to the loss from the RMB/SGD foreign currency exchange swaps with a nominal value of about RMB4 billion ($818.1 million) entered by the group to fund its investment in and the loan granted to Sincere Property.

During the same periods, the group netted fair value gain on financial assets measured at fair value of $26.1 million and $65.7 million for the 2HFY2020 and FY2020 compared to $657,000 and $17.6 million respectively.

Loss per share for the 2HFY2020 and FY2020 stood at 212.5 cents and 212.8 cents respectively.

The group’s net asset value (NAV) per share as at Dec 31, 2020, stands at $9.38, compared to the $11.60 the year before.

“Irrespective of the current pandemic situation, the group continues to work diligently to reposition itself and grow its business. We have shielded ourselves through conservative accounting policies and have not yet unearthed the deep value of our asset portfolio – especially for our M&C hotels which have not been revalued and have much upside potential to be realised. Covid-19 has given us greater impetus to review our entire privatised M&C portfolio, with a view to unlocking the intrinsic value of the group’s revalued net asset value (RNAV) at the right time," says CDL's executive chairman Kwek Leng Beng.

"We have taken a prudent approach with regards to our non-cash, non-recurring impairments and a special working group has been tasked to explore all options in formulating a recovery plan for the Group’s investment in Sincere Property. Our recent acquisition of a majority stake in Shenzhen Longgang Tusincere Tech Park marks our first major step to improve the liquidity of Sincere Property. The situation is fluid and we remain focused on completing our strategic review and embarking on further corporate action, whilst prioritising shareholder value preservation."

"Over the decades, the group has recovered from each crisis and emerged stronger than before. Its balance sheet and financial health remain strong. Moving into 2021, we will continue to display resilience, management expertise and our proven ability to seize opportunities," he adds.

"While our financial results have been negatively skewed by our key Transformation initiatives, these figures do not reflect the reality of what the rest of CDL has pulled together to achieve throughout an unprecedented time in modern history. As the global economy recovers from the effects of the pandemic, the group will continuously refine its Growth, Enhancement and Transformation (GET) strategy to propel recovery and drive growth through initiatives such as land replenishment, portfolio enhancement and fund management," says group CEO Sherman Kwek.

As at end-December, cash and cash equivalents stood at $3.0 billion.

While the group did not declare a mid-year dividend due to the “challenging operating environment”, it is proposing a final dividend of 8.0 cents per share as well as a special dividend of 4.0 cents per share, bringing the total dividend for FY2020 to 12.0 cents a share.

Despite the losses, the dividends were declared to “reward shareholders” for their confidence and support amid the challenging times, says the board.

Shares in CDL closed 18 cents higher or 2.5% up at $7.51 on Feb 25.