Singapore Companies
Published March 5, 2007

Revaluations, asset sales boost developers' 2006 results


RIDING a recovery in the property market, listed developers here posted better earnings in 2006 but their bottom line was also boosted by revaluation surpluses and asset sales.

And in light of the buoyant property market, one-off gains will once again boost profit figures in 2007, analysts said.

The financial results of nine major property developers compiled by BT shows that net profit for the year ended Dec 31, 2006 hit $2.2 billion - up from the $1.5 billion recorded in 2005.

However, analysts BT spoke to said developers' earnings were in many instances helped by revaluations of their properties, as well as the sale of assets to entities such as real estate investment trusts (Reits).

'The general trend I have seen in the results is that quite a lot of it (the earnings) are based on two things - revaluation surpluses and divestment gains,' said OCBC Investment Research's property analyst Winston Liew.

He said that the trend is indicative of a robust property market, which means that there are more buyers looking to pick up assets. Therefore, revaluation surpluses and asset sales could be expected to boost developers' financials significantly again this year, Mr Liew said.

Daiwa Institute of Research analyst David Lum agreed. 'As long as the offers buyers are putting out are attractive, developers will continue to sell,' he said. Analysts point to Reits and private equity funds as probable buyers.

One stand-out performance last year came from Singapore's largest developer CapitaLand, which broke into the billion dollar-earnings club for the first time with earnings growing 36 per cent year-on-year.

According to the company, earnings were partly buoyed by write back of revaluation deficits previously charged to the profit and loss account following higher year-end valuations of its Singapore property portfolio this year.

Another example was City Developments, the second biggest developer in town. Its earnings, which climbed to $351.7 million from $200.4 million in 2005, were boosted by a $150.9 million profit recognised from the sale of four hotels in Singapore to the company's first Reit.

However, one cause for concern is that property stocks are due for a further correction, with many of them trading above their fair values. However, when such a correction will occur, or how much property stock prices would drop then, is uncertain.

Right now, the market is valuing most property stocks at about 20-30 per cent above their revalued net asset values, analysts point out.

'My gut feel is that investors investors could probably buy these companies at lower prices but I have no idea when that (a drop in stock prices) will happen,' Mr Lum said.

Similarly, in a research note released on Friday, CIMB Research also said it was cautious on highly priced Singapore property stocks. Said the note: 'As shown in recent days' market reactions, priced to perfection also means large downside risks should the world wake up one day feeling less than perfect.'