Published August 14, 2009

CDL expects to start South Beach in Q3 '10

Q2 net profit falls on lower development margins, weaker hotel showing


CITY Developments Ltd (CDL) executive chairman Kwek Leng Beng says construction of the delayed South Beach project is likely to begin around the third quarter of next year, with CDL and new investor Nan Fung group of Hong Kong probably the ones that will pump in further money.

CDL's two earlier joint-venture partners in South Beach, El-Ad Group and Dubai World, are likely to be passive investors who may then see their share in the project diluted. 'I think they have other priorities,' Mr Kwek said on the sidelines of CDL's Q2 results briefing yesterday.

The group posted a 15.3 per cent drop in net earnings to $139.98 million and a 32.4 per cent decline in first-half net profit to $223.1 million due to lower profit margins from property development and a weaker showing from its hotels business, which was hit by the global economic slump. However, this was partly offset by higher earnings from rental properties.

The group is planning to launch up to three new condos in the current half - including possibly some units in the residential portion of its Quayside Isle Collection on Sentosa Cove.

CDL said that its bottom line for Q2 ended June 30, 2009 was an improvement from Q1 and it credited this chiefly to higher contribution from property development. Its decision to start building The Arte at Thomson in 2008 before its launch enabled the group to book more profit immediately based on the project's advanced stage of construction when it was launched in March this year.

On South Beach, Mr Kwek said that although the consortium has up to 2016 to complete the project - which will have offices, luxury hotels, retail space and residences - he hopes to finish it before that date. 'In any case, if I miss the period of office oversupply in 2012, it'll be better for me,' he quipped.

'Instead of coming up with a cookie cutter (idea), we're in talks with some creative people to come up with some wow factor.'

The consortium bought the 99-year leasehold site for $1.69 billion in 2007 and had said then that total development cost would be about $2.5 billion. Last November, CDL announced a deferment of the project's construction until construction costs eased.

South Beach will integrate an overhead bridge to Suntec City Convention Centre, Mr Kwek said, pointing to possible synergies between the two sides.

Residential developments that contributed to CDL's Q2 bottom line included Cliveden at Grange, One Shenton, The Solitaire, Tribeca, The Oceanfront @ Sentosa Cove, Botannia and Livia.

After selling 1,031 private homes so far this year for about $1.34 billion (including the share of joint venture partners), CDL is planning to partially launch a few projects in the current half - including a 396-unit condo on the former Hong Leong Gardens site at West Coast; a project with about 160 units on the former Albany and Thomson Mansion sites; and possibly the 228-unit condo being built at The Quayside Isle Collection at Sentosa Cove. The group's landbank stood at 7.5 million sq ft proposed gross floor area at end-June. Of this, 66 per cent was in the local residential market.

Net gearing eased from 48 per cent as at Dec 31, 2008, to 46 per cent at June 30, 2009. CDL's net profit does not include valuation differences arising from investment properties as it has adopted the conservative policy of stating them at cost less accumulated depreciation and impairment losses.

Group net asset value per share rose from $5.97 at end-2008 to $6.18 at end-June 2009.

Second quarter revenue rose 0.8 per cent to $787.1 million while HI revenue dipped 8.4 per cent to $1.41 billion.

In the stock market yesterday, CDL closed 19 cents higher at $10.02.