CapitaLand share price dips after CEO warns of ‘adverse impact'

While the Singapore property developer achieved solid earnings in 2019, a soft 2020 outlook and ‘prudent’ dividend sum have made investors jittery.

Share price of Singapore’s largest real estate group CapitaLand Limited dipped by 1.63% on Thursday 27 February, the day after the company posted fourth quarter results for its 2019 financial year.

Stocks are currently trading at a three-week low of S$3.61 per share. This represents a year-to-date decline of 4.75%.

CapitaLand’s full-year shareholder profit up by 21% in 2019

The group said on Wednesday 26 February that it achieved a full-year net profit attributable to shareholders of S$2.14 billion for 2019, a 21% increase from 2018’s net profit of S$1.76 billion.

Operating PATMI (profit after tax and minority interests) was in line with Refinitiv analysts’ average estimates of S$1.06 billion, a record high for the company. The company said this was driven by contributions from Ascendas-Singbridge (ASB) businesses - which it acquired in July 2019; assets acquired in the 2018 financial year; and assets that turned operational in 2019.

Full-year return on equity (ROE) rose to 10.0% from 9.3% in FY2018, making 2019 the group’s first double-digit ROE in almost 10 years.

For 2019, EBIT (earnings before interest and taxes) was S$5.06 billion, an increase of 22.3% from the S$4.15 billion in FY 2018. Singapore and China markets remain the key contributors to overall earnings, accounting for 83.7% of total EBIT for the year.

The company’s prolific asset recycling strategy, which has seen it divest S$5.9 billion worth of properties, has also helped to lower its debt-to-equity ratio to 0.63x at the end of 2019, from 0.63x in July 2019. The debt-to-equity ratio is a measure of how much a company is financing its operations through debt versus wholly-owned funds.

Highlights from the fourth-quarter

For Q4 2019, net profit attributable to company shareholders was S$926.6 million, 94.8% higher than the same period 12 months prior. According to Group CEO Lee Chee Koon, the increase was mainly due to better operating performance, higher gains from asset recycling and revaluation of investment properties.

Operating PATMI grew 95.7% to S$418.3 million in the fourth quarter, and this was mainly attributed to contributions from ASB businesses and higher recurring income from investment properties in Singapore and China.

Revenue for the quarter grew 46.3% year-on-year to S$2.4 billion, thanks in large part to the consolidation of ASB and Raffles City Chongqing as well as higher contributions from Singapore and China malls and lodging properties in the USA.

However, this was partially offset by lower contributions from the residential properties in Singapore and Vietnam. The residential developments contributing to revenue in the quarter were Raffles City Residences in Chongqing, Vermont Hills in Beijing and Parc Botanica in Chengdu, China; as well as Marine Blue in Singapore.

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CapitaLand’s 2019 shareholder dividend pay-out

The Board of Directors has proposed a final tax-exempt ordinary dividend of S$0.12 per share for the 2019 financial year, unchanged from a year ago. This amounts to a total dividend sum of S$604.5 million for the year, up from S$501 million in 2018.

The company’s current policy is to declare a dividend of at least 30% of the annual cash PATMI, barring any unforeseen circumstances.

The payment date will be announced at a later date.

The group acknowledges in a press release that this is a ‘prudent approach’, but one that it believes will enable it ‘to remain resilient during this period of uncertainty brought about by the COVID-19 situation’.

CapitaLand’s 2020 outlook: businesses adversely affected by COVID-19

Group CEO Lee said the coronavirus (COVID-19) outbreak ‘has definitely affected our businesses and those of our partners and tenants, especially in China and Singapore’.

In the virus epicentre of Wuhan in China, CapitaLand has closed four malls under the directive of the local authority. Some other malls in China have also been temporarily closed or are operating on shorter hours. The group has also temporarily stopped offering most of its short-stay options at serviced apartments.

In Singapore, there has been lower foot traffic in shopping malls and reduced serviced residence bookings, due to higher caution adopted by shoppers, and lower visitor arrivals.

‘COVID-19 will therefore have an adverse impact on our operations and trading results, the extent of which will depend on how long the outbreak lasts,’ Lee warned.

He added that the group’s immediate priority is to ensure the well-being of its staff, tenants and patrons, while also proactively managing the business, and providing targeted relief measures to tenants and the community to ‘fight and ride through this difficult period together with our stakeholders’.

As a show of this commitment, Lee said the group’s board members and senior management team will be taking a 5% to 15% reduction in fees and base salaries from April. It will also freeze wages of all employees in managerial and above positions. A review will be conducted after six months, or when COVID-19 stabilises.

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