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CapitaLand takes impairment charge of $110 mil on unsold units

In the current market, it pays to be a well-diversified property group. At its full-year results briefing on Feb 17, CapitaLand said that it took an impairment charge of $110.1 million for its unsold residential units in Singapore.

“For launched and yet-to-be-launched Singapore residential projects, we worked with our valuers and auditor to stress test every one of them,” said Wen Khai Meng, CEO of CapitaLand Singapore. “Given that the outlook is fraught with uncertainty, we have taken a cautious and prudent approach, and took an impairment based on our stress price.”

The Singapore residential market continues to bear the brunt of the property cooling measures that are still in place. All in, CapitaLand has 1,100 unsold residential units in Singapore, including three yet-to-be-launched projects. The yet-to-be-launched projects are located in the prime districts and ready for launch soon, said Wen. They are Cairnhill Nine, a 99-year leasehold mixed-use residential and serviced apartment project located off Cairnhill Road; The Nassim, a 55-unit freehold condominium on Nassim Hill that was completed last August; and Victoria Park Villas, a cluster housing development located in the Coronation Road-Victoria Park Road landed housing estate.

Some of the residential projects in CapitaLand’s portfolio could also be liable to extension charges under the conditions of the Qualifying Certificate (QC) if the units are not fully sold two years after obtaining the Temporary Occupation Permit. These include its luxury condo Urban Resort on Cairnhill Road, where two penthouses remain unsold; the 1,715-unit d’Leedon on Farrer Road, where 189 units are still available; and the 1,040-unit Interlace in Telok Blangah, where 130 units remain unsold to date.

There are 189 units still available at the 1,715-unit d’Leedon on Farrer Road. Click here to start browsing.

However, even if the number of unsold units remains unchanged by end-2016, the extension charges under the QC conditions will amount to only $7 million, as it is pro-rated according to the proportion of unsold units. “This works out to less than $50 psf,” said Wen.

The Singapore residential sector only accounts for 6% to 7% of the company’s total assets, according to Arthur Lang, group chief financial officer of CapitaLand. While it is an important component of the group’s business, “there are other engines for growth” that the company can rely on, he added.

The office market is expected to remain subdued in 2016 in terms of occupancy rates and rents. However, CapitaLand’s Grade A office tower CapitaGreen was already 91.3% leased as at end-2015.

The group’s income from its retail portfolio is expected to remain steady. Funan DigitaLife Mall is scheduled to close in 3Q2016 for redevelopment works, which could take three years to complete. Jewel @ Changi, a retail project connected to three terminals at the Changi Airport, is expected to be completed by 2018. It is a joint development by CapitaMall Asia and Changi Airport Group.

“CapitaLand remains focused on growth in its core markets of Singapore and China,” said Lim Ming Yan, CapitaLand’s president and group CEO. However, it will continue to expand into growth markets in the region, such as Vietnam and Indonesia, for “longer-term diversification”, he added.

In China, the group achieved its highest residential sales last year, which totalled RMB15.4 billion ($3.4 billion). Development projects in China and investment properties contributed to CapitaLand’s strong results. Group revenue increased 21.3% to $4.76 billion in FY2015.

However, profit for FY2015 dipped 8.2% to $1.07 billion. According to CapitaLand, the drop was due to the absence of one-time gains recorded last year from the sale of Westgate Tower, its office tower at Jurong East.

This article appeared in the City & Country of Issue 716 (Feb 22, 2016) of The Edge Singapore.

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