LOCAL INDUSTRY REVIEW
The Singapore economy grew
robustly in 2007 with a GDP growth of 7.7%. For the fourth quarter,
unemployment rate dropped to its lowest level in a decade to 1.6%.
In tandem with the sizzling
economy, the construction sector also grew by a hefty 46% with
volume of contracts awarded hitting $24.5 billion. It was way
above the earlier estimate of $19 billion to $22 billion.
The property market performed
very well with the residential property price index increasing
by 31.2% during the year. Transaction volume for the primary market
also achieved a new record with 14,811 units sold during the year.
In the rental market, house
rental surged by 41.2%, yet another record in the residential
However, it must be noted that
the bulk of these increases were registered in the first 9 months.
Transaction volume and rental increase have slowed down in Q4
due to concern in the volatile financial market triggered by the
The office market was extremely
robust in 2007. Islandwide, occupancy improved from 89.7% in 2006
to 92.7% in 2007. The strong demand and limited supply led to
a steep rental increase of more than 50% for the year.
In the year under review, the
Group has achieved sterling results, buoyed by the outstanding
performance of the property development sector of the Group. Revenue
increased by 22.0% to $3.11 billion from $2.55 billion in 2006.
Profit for core earnings after tax and minority interest soared
to $725.0 million, a 106.2% increase from 2006 of $351.7 million
without divestment gains and fair value gains on investment properties.
The Group’s record profit achieved in 2007 is its best since
its inception in 1963.
The Group adopts the conservative
policy of depreciating its investment properties as allowed under
Financial Reporting Standard (FRS) 40. However, if the Company
and its subsidiaries had adopted a revaluation policy as commonly
practised by practically all Singapore listed developers, its
profit after tax and minority interest would have surged to $2.8
billion after taking into account the fair value gains on investment
properties from 2006 to 2007 (not taking into account net book
value). The Group holds the view that by taking the valuation
route, this will reflect inappropriately the unrealised profits
due to market fluctuations from year to year. Therefore, it has
continued to adopt the conservative policy of depreciating its
investment properties as allowed by FRS, providing a consistent,
yearly assessment of its core cash generation earnings.
Excluding the one-off gain
arising from the divestment of its long leasehold interest in
four Singapore hotels to CDL Hospitality Trusts (CDLHT) in 2006
of $150.9 million, 2007 total profit before tax increased by $413.2
million or 76.3% to $954.6 million as compared to the corresponding
All three core segments of the
Group – property development, hotel operations and rental
properties have performed well and contributed significantly to
the Group’s stellar results.
As a result of the good performance,
Basic Earnings Per Share of the Group increased by 111.6% to 78.3
cents from 37.0 cents for 2006.
The Board is pleased to propose
the payment of an additional special ordinary dividend of 12.5
cents per share, in addition to the normal ordinary dividend of
7.5 cents per share. All such dividends will be tax exempt (1-tier)
dividends. Together with the special interim dividend of 10 cents
paid on 30 October 2007, the total dividend proposed and paid/payable
by the Group to its ordinary shareholders for the year under review
amounts to 30 cents per share.
2007 was a very active and
rewarding year for the property market and a very successful one
for the Group. It sold a total of 1,655 units with sales value
hitting a record
$3.38 billion, about 22% higher than 2006’s sales value
of $2.77 billion.
During the year, the Group
successfully launched five new residential projects, three of
which are in the high-end segment.
In January, the Group launched
the iconic 341-unit One Shenton which is located in the exciting
Marina Bay area. This project met with very good response and
is now substantially sold.
Next, the boutique 59-unit
The Solitaire, nestled in District 10’s lush residential
area of Balmoral Park was successfully launched in March and all
the units were snapped up within a week after the soft launch.
In June, the Group launched
its super luxurious Cliveden at Grange. This prominent 110-unit
freehold, upmarket project with iconic architecture and charming
landscaping comes with one apartment per floor and offers virtually
360° panoramic views of the surrounding. Todate, 89 out of
the 100 units released have been sold.
In the mid-market segment,
the Group launched Botannia, a 50:50 joint venture project, located
in the West Coast area. More than 93% of the 493 units have been
In November, the Group launched
Phase 1 of its Wilkie Studio located at Mount Sophia. This exclusive
freehold 40-unit petite development is located within an up-and-coming
desirable residential district. Almost 90% of the units launched
have been sold.
During the year, the Group
booked in profits from Monterey Park, City Square Residences and
Tribeca as well as previously completed projects such as Chelsea
Gardens and The Equatorial. Other joint venture developments contributing
to the Group’s profits include St. Regis Residences, The
Sail @ Marina Bay, The Oceanfront @ Sentosa Cove, Residences @
Evelyn, Parc Emily, Savannah CondoPark, Edelweiss Park, Ferraria
Park, The Pier at Robertson and Botannia.
Profits were also recognised
from strata units bought from third parties for resale namely,
Cuscaden Residences, 7 Draycott Drive and The Imperial.
However, no profit recognition
had been made yet for One Shenton, The Solitaire, Cliveden at
Grange and Wilkie Studio as these projects are still in the initial
stage of construction. These projects account for $1.735 billion
of sales value.
The office market performed
strongly with healthy increases in occupancy and rental rates.
Capital value of offices rose by 32.6% in 2007.
The Group’s extensive
portfolio of office properties continued to enjoy good occupancy
of over 95.5%. Existing rentals are being progressively revised
upwards to reflect the improved market conditions when leases
are due for renewal. Given the improving office rental yields,
the Group has ample time to review its strategy with options to
continue retaining its commercial properties at a low cost base,
monetise its commercial portfolio and/or extract maximum value
by selling its assets wholesale or individually.
For the year under review,
the Group acquired land bank at approximately $1.345 billion (including
the Group’s share of joint venture projects) which will
serve as a pipeline for future development. A major acquisition
was the high profile tripartite, joint venture iconic South Beach
development, located along Beach Road in the Marina Bay / Raffles
City area. Together with two prominent, internationally renowned
partners led by the Group, the consortium was awarded this strategic,
highly coveted site, through an intense competitive tender exercise
based on design first, and then price. South Beach is an equal
partnership among the three conglomerates at a tender price of
$1.688 billion. In line with the Group’s commitment as a
Green developer, South Beach is envisioned as a revolutionary
Eco-Quarter, incorporating sustainable environmental elements;
thereby heralding a new generation of environmentally conscious
The 2007 results of Millennium
& Copthorne Hotels plc (M&C), which the Group has a 53%
interest, have outperformed market expectations and mark the fourth
consecutive year of healthy revenue and growth. The 5-year compound
annual growth rate of profit before tax is 21.4%. The excellent
results are due to strong operational profits enhanced by the
prime location and quality of our hotels in gateway cities including
London, New York and
Singapore. The hotel operations have increased operating profit
by a compound annual growth rate of 21.2% since 2003 while the
margin has increased from 13.0% to 21.6%.
M&C’s profit after
tax and minority interest was £149.4 million (2006: £100.1
million) and basic earnings per share increased by 47.0% to 50.7p.
The sterling results are due
to the success of M&C’s business strategy blueprint
that was incorporated in 2004 and updated in 2006. Since then,
M&C has been delivering consistent year-on-year growth, reaching
yet another record in 2007. This is a testament of the strength
of the M&C team which does not overly rely on any one individual.
CURRENT YEAR PROSPECTS
Singapore has revised its economic
growth forecast downwards from 4% to 6% from the previous 4.5%
to 6.5% for 2008 due to external economic conditions that have
deteriorated and increased downside risks.
In an affirmative step towards
making Singapore even more attractive to wealthy investors, the
government has in its recent Budget speech announced the removal
of estate duty with immediate effect. This move will incentivise
high net worth individuals to make long-term investments in Singapore
thus enhancing its status as a global wealth management hub. The
property market, especially the high-end segment, is likely to
be a benefactor of this initiative since real estate has always
been of strong interest to such investors.
The sub-prime issue has affected
the property market with subdued sentiments as investors adopt
a wait-and-see attitude. Operating in a global economy today,
it is inevitable that Singapore and its regional neighbours will
be affected should the world economies fall into a worldwide recession,
triggered by the US. Fundamentally, market sentiments are the
driving force. Investors should continue to look at Singapore
favourably as our restructured economy is beginning to bear fruit.
In the short term, depending
on when the global economy stabilises, the property market will
likely remain subdued. The high-end properties which have seen
steep phenomenal price growth over the last year has become passive
but consolidating. The mid-tier market remains healthy but will
not be as vigorous as anticipated. Although the mass property
market may appear to be experiencing strong growth, it is still
not widespread yet. Property prices for the mass market are still
below the last peak of 1996, leaving more room for growth in this
segment. The superrich investors from Russia, Middle East and
even hedgefund managers have yet to come into Singapore in a big
way. With Singapore developing into a global city and placed into
the limelight, it can be a very attractive place to invest for
these well-heeled clienteles, as in London.
Depending on the market conditions,
the Group may consider launching the following projects in the
The first is Shelford Suites,
located along Shelford Road, off Dunearn Road. This exclusive,
boutique freehold condominium comprising only 77 apartments, is
set in the midst of an exclusive private residential estate and
in close proximity to excellent schools.
The second is a joint venture
property sited along Pasir Ris Drive 1, strategically located
minutes from the Pasir Ris MRT station. This condominium targeted
at the mass market will comprise 10 blocks of 15 to 16-storey
towers, yielding 724 units with two, three and four-bedroom apartments
as well as penthouses. In its lush tranquil setting, in close
proximity to numerous amenities, this project will appeal to many
homebuyers and investors. The Group has a 51% share in this development
and the project will be launched in phases.
The third project is the redevelopment
of the former Lock Cho apartments at Thomson Road. This 336-unit
freehold development with two 36-storey towers will cater to the
mid-tier market. This will be an exciting project as it is well
located in an area that is experiencing rejuvenation.
The fourth development is the
much awaited Quayside Collection at Sentosa Cove. This integrated
project comprising commercial space, a 228-unit luxurious residential
development and a proposed 249-room, five-star waterfront hotel
is designed to be the entertainment and leisure hub of Sentosa
Cove. Like St. Regis, the hotel and residences will be branded.
The Group is the only developer to have large mixed-use choice
sites that enable it to bring new, branded living concepts to
The world economic outlook
for the first half of 2008 remains uncertain. The Group is fortunate
to have presold sales value of about $6.2 billion of its projects
between 2006 and 2007. The better-than-expected substantial profits
locked in will continue to be recognised progressively based on
In Singapore, developers book
in profits based on the construction progress of any housing project
as prescribed by the Controller of Housing. Therefore, many developers,
large or small, who have pre-sold their properties with healthy
profit margin will not be adversely affected should there be a
slow-down in the economy as they will continue to recognise their
gains progressively for the next two to three years. Hence, many
can afford to pace or delay their launches in a slower market.
As the Group’s gearing
is relatively low, it is not pressured to launch new projects.
It has the financial muscle to weather this period of uncertainty
even for the next three years. Even if the Group defers or paces
its launches, it will proceed with the construction for its projects
where construction cost has been favourably secured earlier. It
may also consider constructing selected projects when the construction
cost stablises at a reasonable level. It expects that when sentiments
improve and when the market begins to recover, there would be
pent-up demand which the Group will be in the position to meet.
Moving forward, the performance
of the property market will largely depend on how the sub-prime
crisis pans out and its impact on global economies. The property
market scenario today is very different from a year ago. Formulated
policies and plans for 2008 based on the buoyant conditions of
2007 will need to be revised quickly to meet the changes in the
current market condition. As proven in the past, the Singapore
property market is a very important pillar that complements the
other sectors of the economy. It is therefore vital that stakeholders
of the property industry remain nimble by reviewing and
modifying their practices quickly so that they stay relevant,
thereby minimising potential problems and arrest them ahead of
Given Singapore’s strong
fundamentals, accompanied with forward looking strategies which
have enabled Singapore to be a choice city to live, work and play,
the Group is confident that Singapore will remain very attractive
to the investment community locally and globally, especially since
its restructured economy has just started to bear fruit for this
city. Singapore has created its own brand with much equity and
is poised for a new era of growth.
Nevertheless, it must be emphasised
that property investment is not a short term commitment. History
has shown that investing in real estate in Singapore with a medium
to long term perspective has provided higher returns, through
en bloc sales or value appreciation of the properties over time.
Real estate is not as liquid as stock and shares and it can never
be reduced to zero value even in a downturn. In the longer term,
it is likely to outperform many other classes of assets. Properties
are a well established hedge against inflation. Under current
high inflationary environment, this would be an opportune
time to purchase properties as housing loan rates are still very
attractive. Importantly, property buyers must be able to service
their instalment payments within their means.
With fewer property buyers in the market, more will opt to rent
which will raise the rental yields for apartments.
The office sector remains buoyant.
The potential office supply may be delayed as there is a strain
on the construction industry. Between now till possibly 2011,
rentals are likely to remain healthy due to the limited supply
coming on-stream and growing demand. As one of the biggest landlords
in Singapore, the Group will benefit from the office crunch and
pent-up demand as many of its key tenant leases are up for renewal
during this period. While there are concerns that office rentals
have gone up significantly recently, many forget that this sector
has not grown much, except in the last two years, as rental increases
also suffer a lag time since rental rates are often locked in
over a period of time. Hence, many of the low rental rates were
committed during the lull period of the property market and the
improvements are evident when leasing contracts are up for renewal.
The Group is expediting the
development of Tampines Grande commercial plot located near Tampines
Central. This modern office complex with about 361,662 square
feet of GFA is targeted to be completed by 2009. This will enable
the Group to further tap on the strong demand for office space
as more companies move their backroom business operations into
On the retail front, the Group’s
investment commitment in the private real estate fund Real Estate
Capital Asia Partners, L.P. (RECAP) which acquired Jungceylon
complex at Patong Beach, Phuket’s largest shopping mall
with about 1.5 million square feet of retail space, has opened
for business with 86% of the complex leased out. The 421-room
Millennium Resort Patong Phuket, located next to the mall also
opened its doors in January 2008.
In Singapore, the 700,000 square
feet City Square Mall located at the junction of Serangoon and
Kitchener Road, with the Farrer Park MRT station at its basement,
is an attractive retail mall as it stands to provide an estimated
1.3 million potential customer base. The street-like retail design
concept within the 5-storey atrium has been carefully designed
to maximise shop visibility, providing a unique shopping experience.
Slated to open in 2009, negotiations with anchor tenants are progressing
The hospitality industry in
Singapore is also performing strongly. The Group has successfully
capitalised on the CDL Hospitality Trusts (CDLHT) platform to
extract greater revenue in light of the favourable market conditions.
While there are fears that the Integrated Resort (IR) hotels when
built by 2010/2011 will flood the city with an oversupply of hotel
rooms, the Group holds a different view. Although there may be
an initial impact of short term oversupply, this will not be significant
as the operators of the IR have their own marketing mechanism
to attract their profiled clienteles to fill their rooms. In fact,
the IR operators feel that they may not have sufficient rooms
in the longer term. The IRs will make Singapore an even more exciting
and attractive city with increased visitorship for business and
leisure travellers. Moreover, some of these visitors may enjoy
their stay so much as to purchase a property as their vacation
or second home. The Group anticipates that the next wave of good
business will be in 2011 when the two IRs are opened and operating
Besides the diversification
through the ownership and management of its hotel portfolio, the
Group continues with its strategy to expand overseas either through
real estate funds such as RECAP or by direct real estate investments.
Recently, it has made overseas real estate investments/acquisitions
in South Korea (Seoul), Russia (Moscow), Thailand (Bangkok and
Phuket) and China (Beijing and Tianjin). As part of the Group’s
diversification efforts, it continues to explore new business
opportunities in promising overseas markets in South Korea, China,
India, Japan, Vietnam and Eastern Europe/ Commonwealth of Independent
States (CIS) countries across the various property market segments.
The Group continues to remain
steadfast to be the proxy to the Singapore property market as
this upcoming global city is beginning to reap the benefits of
a restructured economy. It is confident that when the IRs are
successfully operational, accompanied with mega high profile events
and investments flowing into Singapore, this city will take the
next quantum leap forward, with a sustainable burst of growth
opportunities which will greatly benefit the real estate sector.
M&C has managed to expand
its global hotel portfolio with a well spread-out presence. Located
in key gateway cities, the hotels are mainly business hotels which
cater to a broad spectrum of travellers. Even if travel in the
US market should slow down, M&C hotels should not be adversely
affected as its hotel presence and revenue stream are well distributed.
M&C continues its successful
twin strategy of being both a hotel owner and operator as it enjoys
excellent cash generation capability and at the same time, capitalises
on its hotel assets value over time through better operating performance,
redevelopment or natural appreciation of its real estate value.
Four new hotels were also opened
in 2007 in Qatar (Doha), Egypt (Sharm el Sheikh), Phuket and the
325-room Grand Millennium Sukhumvit in Thailand.
In 2008, the Grand Millennium
Beijing, a 521-room 27-storey hotel located in the heart of Beijing’s
new financial and business district will be opened in the first
half of the year. Another two hotels in China under management
contracts will also be opening in Chengdu and Wuxi. Other scheduled
hotel openings include Abu Dhabi, Dubai, Kuwait, Egypt (Sharm
el Sheikh) and UK (Sheffield). Management contracts have also
increased to 23 from 21 in 2006.
CDL Hospitality Trusts, which
M&C has a 38.5% interest, purchased Novotel Clarke Quay Hotel
in June 2007 for $219.6 million and now has six hotels under its
M&C has a robust balance
sheet, a strong asset position and low debt. In 2007, its gearing
is reduced to 18.3% as compared to 20.5% in 2006. Its interest
cover ratio, excluding share of joint ventures and associates,
other operating income and impairment improved from 4.6 times
in 2006 to 8.5 times in 2007. M&C is ideally positioned to
swiftly capitalise on new opportunities down the road which may
arise as a result of the change in the current economic climate.
In the first four weeks of
trading in 2008, M&C achieved a RevPAR growth of 11% as compared
to the same period in 2007 of 9.2%.
Property development will continue
to make significant contribution with locked-in profits yet to
be recognised from its pre-sold residential projects. Some may
be concerned that the US sub-prime issue may impact the hospitality
business. However, the Group is fortunate to have its hotels well
spread-out geographically and therefore, it is unlikely to be
materially affected by this uncertain environment. As world travel
increases with greater accessibility to more budget and super-large
aircraft options, the Group stands to benefit as its hotels cater
to business, MICE and leisure travellers. Healthy rental renewals
and tight office supply auger well for the office rental segment.
The Group is confident that
all three core segments of its business – property development,
hotel operations and rental properties have been performing well
and the prospects are good. With the above, the Group’s
earnings growth is assured and it should remain profitable over
the next 12 months.
On behalf of the Board of Directors,
I would like to thank our stakeholders, including our shareholders,
customers and business associates, for their continued support.
My appreciation also goes to my fellow Directors for their invaluable
counsel, and to the Management and staff for their unwavering
dedication and hard work in the past year.
28 February 2008