For the year ended 31 December
2008, CDL achieved revenue of $2,945.2 million (2007: $3,106.1
million) and posted after-tax profit attributable to shareholders
of $580.9 million (2007: $725.0 million). The Group’s
net profits which are core earnings, show a credible performance
given the severe economic conditions that it operated during
2008. Its results are the second highest achieved since
its inception in 1963.
The decrease in earnings
was largely due to lower contribution from the Group’s
subsidiary, Millennium & Copthorne Hotels plc (M&C)
hotel operations as a result of the strength of the Singapore
dollar particularly against the Sterling Pound which had
a significant impact when the exchange rate translation
was factored in the consolidation at the Group level. M&C
also took in impairment charges relating to its joint-venture
investments in Beijing and Bangkok and some of its assets
in Asia, UK and US.
The Group’s property
development segment continued to be the main contributor
to its core earnings. Profits have also yet to be recognised
fully from its pre-sold residential developments as these
projects are still in the early stage of construction. These
healthy gains have been locked in and will be booked in
progressively based on the construction progress.
Rental properties segment,
though the third in line, had shown a further improvement
of 2.0% on top of last year’s profit which had benefited
from $75.0 million of reversals of impairment provisions.
This year, the rental properties segment benefited from
the sale of Commerce Point and higher occupancy during the
As the Group adopted the
conservative accounting policy of stating its investment
properties including joint-venture investments and associate
companies such as CDL Hospitality Trusts at cost less accumulated
depreciation and impairment losses, its profit is not subject
to volatility arising from anticipated lower valuations
due to the current economic downturn.
Whilst the credit market
has tightened, the Group continued to maintain a healthy
balance sheet. Net gearing ratio was at 48.0% (2007: 48.0%)
with interest cover of 11.0 times (2007: 10.5 times). Had
the Group adopted a revaluation policy, its net gearing
ratio would be 32.0%.
During the year, the Group
pioneered Singapore’s first corporate Sukuk-Ijarah
through the establishment of a S$1 billion unsecured Islamic
Trust Certificate Programme. It was able to do so because
it has a diversified portfolio of assets and had the advantage
to extract appropriate assets which have to be Shariah compliant
to tap on these new investors and diversify its financing
stream. In parallel, the Group had also upsized one of its
current existing Medium Term Note Programmes from S$700
million to S$1.5 billion on 29 December 2008. This fund-raising
exercise adds another dimension to the Group’s financial
strength, providing flexibility to meet the Group’s
financing and working capital requirements as well as enhance
its war-chest, allowing it to seize potential investment
opportunities at the appropriate time.
Despite the difficult trading
conditions going forward, the Board will recommend a final
dividend of 7.5 cents (2007: 7.5 cents) per share, which
is consistent with its dividends declared in past years,
other than additional special ordinary dividends and preference
The global financial crisis
worsened in the last quarter of 2008 dragging Singapore’s
GDP down by 3.7% in Q4 08. The GDP growth for the whole
of 2008 is estimated at a mere 1.2% compared to the initial
estimates made in the beginning of the year of between 4.5%
Not unexpectedly, 2008 was
a challenging year for the Singapore property market with
downward pressure on both transaction volumes and sale prices
after a blistering performance in the previous two years,
weighed down by global financial woes.
According to official statistics
released by the Government, residential property prices
fell 4.7% in 2008 compared to a 31.2% increase in 2007.
While property prices for the mass market had dropped slightly,
the high-end property segment showed steeper falls. Transaction
volume of new residential units plummeted to 4,264 units
compared to 14,811 units in 2007, a decline of 71% year-on-year.
In view of the subdued market
conditions, the Group tested the market with the launch
of its small development Shelford Suites in June. The response
was not up to its expectations. After reviewing the strategy,
the Group extracted from its land bank and launched Livia
to the mass market in Q3 08 with a different price package
as its land and construction costs were relatively low.
The launch was very well received with strong take-up rates
even without the Deferred Payment Scheme (DPS) or interest
absorption scheme. Recently, another 30 units were re-launched
and more than half of them have been sold. To-date, the
Group has sold more than 350 units of Livia out of the 440
During the year under review,
the Group booked in profits from pre-sold projects such
as City Square Residences, One Shenton, Tribeca, The Solitaire,
Wilkie Studio and Cliveden at Grange. It also booked in
profits from joint-venture projects namely The Sail @ Marina
Bay, St. Regis Residences, Botannia, The Oceanfront @ Sentosa
Cove, Parc Emily and Ferraria Park Condominium.
The turmoil in the financial
market during the last quarter caused many firms to shelve
business expansion plans or to downsize their workforce
hence reducing their office space requirements. Such contraction
has affected the office market. According to property consultants,
prime Grade A office rental fell by 12.5% in Q4 08 alone.
Though the occupancy rate remained relatively healthy, it
is expected to moderate downwards due to the contraction
in the economy.
For the year under review,
the Group managed to achieve an occupancy level of about
94% for its office portfolio.
In 2008, M&C in which
the Group has a 53.5% interest, continued to maintain a
strong balance sheet and low gearing at 16.4% (2007: 18.3%)
with interest cover up at 12.4 times (2007: 8.5 times).
As at 31 December 2008, M&C had cash of £212.1
million and total undrawn committed bank facilities available
at £188.6 million.
Despite the difficult economic
conditions, M&C in 2008 achieved a 5.0% increase in
revenue to £702.9 million (2007: £669.6 million)
in reported currency. Its RevPAR in reported currency also
increased by 7.6% to £57.19 (2007: £53.16) while
headline profit before tax increased by 6.4% to £125.9
million (2007: £118.3 million).
M&C opened seven new
hotels in 2008 – one in Beijing, another two in China
operating under franchise agreements and four in the Middle
East region operating under management contracts. Since
then, a new managed hotel in Sheffield, United Kingdom,
has been opened and a management contract for two hotels
has been signed in Liverpool. As at 31 December 2008, M&C
had 102 hotels operational and 17 hotels in the pipeline
to be managed under M&C’s brands.
Prior to the global economic
turmoil in 2008, a period of high liquidity and relatively
easy access to credit markets had fuelled an insatiable
demand for real estate properties including hotels and has
contributed to an escalation in asset prices in many countries
around the world. During this period however, M&C adopted
a conservative approach and had been selective in making
investments in Asia, with a particular emphasis on growing
the Group’s presence in key gateway cities. Accordingly,
M&C has been relatively less aggressive than other investors,
and thus, the overall exposure of its investments to the
deterioration in the global markets has been less significant.
In June 2008, M&C entered
into a contract to dispose of CDL Hotels (Korea) Limited.
Although the purchaser was unable to complete the transaction,
M&C recorded a £31.4 million gain arising from
the forfeiture of the non-refundable cash deposit paid by
the buyer. This has helped to boost M&C’s cash
position by £27.3 million.
The severe contraction in
the Singapore economy in Q4 08 has prompted the Government
to drastically mark down its GDP forecast to -2% to -5%,
the gloomiest forecast for Singapore to-date.
Recognising the severity
of the downturn, the Government brought forward its 2009
Budget to January and presented a resilient budget of $20.5
billion, drawing $4.9 billion from its past Reserves for
the first time.
In the property sector, the
Government suspended sale of Confirmed List sites in its
Government Land Sales programme which will help to curb
the supply of land for new developments in the future. It
also introduced new measures to ease the cash flow of developers
by giving them greater flexibility to stage sale and construction
of projects according to market conditions. The measures
include deferring land tax and provision for longer completion
period of new projects. Property tax rebates were also given
to assist landlords and tenants to help ride through the
In view of the market conditions,
the Group has held back the launch of two residential projects
namely The Arte at Thomson and The Quayside Collection at
Sentosa Cove (comprising 336 and 228 units respectively)
even though it has continued to construct these developments.
The continued construction reflects the Group’s confidence
of the market’s recovery before the completion of
the projects. As market sentiments continue to improve,
the Group may launch these projects soon. When the projects
are launched, the Group will be able to book in more profits
immediately based on the advanced stage of construction
at the time of sale.
While the high-end residential
property market has been sluggish, the recent successful
new launches targeting the mid and mass market segment is
generating renewed interest with increased visitorship to
showflats and good take-up rates. This is largely due to
developers aligning their prices with the market appetite
to push sales or generate cash flow with the possible aim
of self-financing the projects. The well-received launches
are an indication that buyer sentiment is improving and
purchasers, especially the mid and mass market segment,
have the financial capability to commit to property investments
as banks are still lending on housing loans even though
the quantum may be more conservative. Many investors prefer
to own real assets and are returning to invest in property
as such investments do not plunge as much within a short
time frame as compared to stocks and shares. Furthermore,
real estate in Singapore is likely to outperform other classes
of assets when viewed with a medium to long term perspective.
The Group believes that as the property market turns more
active, confidence will increase which augurs well for the
Currently, the Group has
low stock of unsold inventory of its launched projects.
An estimated 142 units are left of its share of already
launched developments. Less than 10% of these units are
for the high-end market and the remainder is for the mid
and mass market.
The Group has also done an
extensive analysis of buyers who had opted for DPS when
it was made available. Its exposure is limited as only 30%
of units sold were under this scheme. The Group has adopted
the policy of collecting a 20% down payment for DPS buyers
unlike other developers who may require a lower quantum.
The Group does not extend DPS to subsales. The sales and
purchase agreement is a legally binding document and buyers
cannot breach their contractual obligations. The Group believes
that there is hardly any risk of DPS buyers being unable
to fulfil their commitments for the properties pre-sold
prior to 2007. For units pre-sold especially during the
second half of 2007, the percentage of the Group’s
exposure is relatively low. Notwithstanding the current
market conditions, and considering the land cost of those
pre-sold developments, the Group believes the situation
has not arisen to warrant any alarming concern on DPS buyers
As reported in Q3 2008, the
Group in consultation with its joint-venture partners have
deferred the construction of its South Beach development
as it believes that construction cost will come down further
over time as it is already beginning to do so, making the
project even more attractive when market conditions improve.
The joint-venture partners are engaged in discussions with
the consortium’s banks to extend its loan for the
land. It is important to note that South Beach development
was awarded after an intensive competitive tender exercise.
Even though the consortium was not the highest bidder, it
won based on its innovative eco-design. In a recent external
valuation for the year ended 31 December 2008, there is
no provision required for impairment on this development.
The Group has also introduced
cost-saving measures to rein in operating cost and expenses.
For projects which the Group has not commenced construction,
it has decided to defer further development of its land
bank for the time being as past experience has shown that
the value of its undeveloped land bank will not fall as
much as a built environment during the lull periods, but
instead, continues to appreciate over time. Moreover, the
Group will be able to utilise this land more effectively
in an upturn. Nevertheless, depending on demand, it does
have the option to tap on its extensive land bank, much
of which was acquired at a low cost. Its strong land bank
and investment portfolio of hotels and commercial properties
provide the Group with a sustainable model to grow its business
or to extract value from its investments.
The Group’s office
portfolio is enjoying healthy occupancy of about 94% compared
to 83% achieved during the difficult period in 2003. Nevertheless,
no effort is being spared to ensure a high rate of renewal
for existing tenancies and also to attract new tenants to
its buildings as the Group has a diversified office portfolio
that caters to different tenant mix and requirements. The
Group has already renewed most of its office leases at higher
rates and these have been locked in. In light of the present
economic conditions, even though office rentals will be
moderated, most of the Group’s remaining leasing contracts
up for renewal should still be renewed at a higher rate
as previous rental rates committed during the lull period
The Group’s mega retail
complex, City Square Mall is progressing on schedule for
opening in the last quarter of 2009. Strategically located
at the fringe of the city and conveniently connected to
Farrer Park MRT Station, the Mall is attracting retailers
who are starting to move out of the city centre into the
captive suburban market. With its good location and also
with large numbers of residents soon to move into the area
from new residential developments like the 910-unit City
Square Residences, the Mall is targeting to attract at least
1.3 million footfalls per month. Over 75% of the retail
spaces have already been committed and the Mall will be
ready to open for business once TOP is obtained.
Leasing of the two suburban
office buildings at Tampines, 9 Tampines Grande and Tampines
Concourse is progressing and active negotiations are ongoing
to fill up the remaining space.
Airline load factors are
currently in decline despite the reduction in energy and
fuel oil prices. Leisure and corporate travel are also facing
great constraints. The global hospitality market will not
be spared from these tough times.
M&C’s RevPAR for
the first five weeks of 2009 has declined by 21.2% mainly
due to decrease in contributions from New York and Regional
US markets (41% and 23% respectively). New York hotels were
affected the most, especially the Millenium Hilton Hotel
which saw a steeper decline with its greater exposure to
the city’s ailing financial sector. The refurbishments
of M&C hotels in Boston and Chicago (except its lobby)
were also just completed in Q4 08. M&C has flattened
the management structure in the US and is closely monitoring
to improve its operations. Despite the softening of demand
across the regions which M&C operates, it is important
to note that in general, the lower performance of the first
5 weeks of 2009 is not a good indication as the lion’s
share of M&C’s earnings are traditionally achieved
in the second half of the year.
In general, the hospitality
market is expected to decline further before it gets better.
While the next few quarters will present challenging trading
conditions, this is expected to be partially mitigated by
the fact that global rooms supply from new build hotels
will be limited due to the lack of debt financing. Moreover,
M&C’s extensive portfolio of hotels are diversified
geographically and are positioned as 4-star hotels, even
though some are of 5-star standard. They offer very competitive
rates for the high standards that they deliver. During this
downturn, many discerning travellers are expected to downtrade
their stay from 5-star hotels to 4-star facilities that
offer value for money. M&C stands to benefit from this
and should have the advantage of performing better than
other hotel operators. Riding through this storm, M&C
will continue to focus on conserving cash and profit protection
plans, to mitigate the impact of the global downturn.
Some tough decisions have
been made in recent years at M&C, including changes
in senior management, and a prudent approach to acquisitions,
divestments and the way in which these are financed, have
been maintained. While some of these decisions were unconventional
and may have even been unpopular, M&C’s responsible
actions have helped to enhance its strength to withstand
the current economic crisis. With a continued policy of
tough, prudent and analytical management, M&C will be
able to steer through these rough waters. When calm returns
to the world economic scene – as eventually it must,
M&C would have secured an enviable competitive position
from which it can exploit the best commercial opportunities
that become available.
The Group is cognisant of
the many challenges that lie ahead.
Moving forward, the Group
will adopt a “3P” approach. It will exercise
prudence in the management of expenses and remain thrifty.
The Group will take a pragmatic strategy in managing our
risks and opportunities and will work harder to ensure no
stone is left unturned in the drive towards continued profitability.
It will streamline its operations and prepare for the recovery
and the next boom. Finally, the Group will exercise patience
in riding out this difficult period. It is confident that
after this storm, there will be growth and just as it has
done in the past, with foresight, the Group will do the
groundwork which will enable it to take the next quantum
While much of the global
economic woes are beyond its control, the Group remains
optimistic of Singapore’s prospects. Given Singapore’s
strong fundamentals and the dedication shown by the Government
in its recent extraordinary budget, it is confident that
Singapore has the ammunition to ensure that her economy
will be one of the first to emerge from this recession stronger.
The Government has done its part through its Budget incentives,
but it cannot act alone. This worldwide financial tsunami
is not one that can be easily resolved. The challenges are
so globally intertwined that it is imperative for everyone
to preach the belief that there is light at the end of this
tunnel. Together, the community can help restore market
confidence which is the bedrock of any economic revival.
The Group believes that Singapore remains an excellent city
to live, work, play and invest.
Depending on how quickly
the global economy recovers, the Group is confident that
with good management strategies in place, its sheer tenacity
and resilient spirit will help tide it through this year;
and it expects to continue to perform profitably.
On behalf of the Board, I
wish to express our sincere appreciation to Mr Chow Chiok
Hock, who will be retiring from the Board at the forthcoming
Annual General Meeting, for his invaluable contribution
to the Group over the last 30 years. I would also like to
thank the Management and staff for their unstinting dedication
and hard work in the past year. We are also deeply appreciative
of the continued support of our stakeholders, including
our investors, customers, business associates and community.
26 February 2009