CapitaLand ups payout ratio despite deep revaluation losses on malls


HEFTY impairments and revaluation losses, including for ION Orchard and Jewel Changi Airport, pushed CapitaLand into its first full-year net loss in almost two decades.

The non-cash items, which largely stemmed from pandemic-related extraordinary events, also led to the property behemoth falling into the red for the second half of 2020 with a net loss of S$1.67 billion, from a S$1.26 billion profit a year ago.

Notwithstanding these “non-systemic” fair value losses and impairments, CapitaLand’s board has proposed a final dividend of S$0.09 per share. While that is lower than 2019’s dividend per share of S$0.12, it translates to a payout ratio of 52 per cent based on cash profit after tax and minority interests (Patmi), which exceeds the average of 41 per cent in the preceding four years.

This ratio signals that “CapitaLand remains in a strong, liquid position to be able to reward our shareholders for their support”, said group chief financial officer Andrew Lim at the results briefing. DBS analysts also noted that the dividend beat market expectations of S$0.05 to S$0.06, “implying confidence in the group’s cash position amid operational and capex obligations”.

Fair value losses of investment properties held through subsidiaries totalled about S$1.53 billion in H2 2020, versus a gain of S$571 million a year ago. These were mainly attributable to malls and lodging properties.

The group also booked a S$593.6 million impairment of investments in Hong Kong, Australia, the US, the UK and Indonesia during the half year, about 23 times the S$25.9 million impairment in H2 2019.

A handful of assets, which took the brunt of the pandemic’s impact, suffered revaluation losses of S$886 million in total last year, or more than half of the group’s unrealised fair value losses. The five assets were ION and Jewel in Singapore, and China’s Raffles City Chongqing (RCCQ), CapitaMall Westgate Wuhan and Tianjin International Trade Centre.

The valuation of the five properties shrank by 17 per cent on average in 2020, far steeper than the 4.7 per cent drop for the entire portfolio, said Mr Lim. “This is not a systemic impact into our property investment business, but rather a … much more focused impact experienced by a specific number of assets,” he added.

ION, in which CapitaLand owns a half stake, was valued at some S$3.14 billion at end-2020, down 8 per cent from a year ago. Meanwhile, Jewel, in which CapitaLand holds a 49 per cent stake, was valued at about S$1.4 billion, down 17 per cent from 2019.

Unlike suburban malls which were supported by local consumer spend, ION and Jewel relied heavily on tourist demand, which dried up due to border curbs and dealt a bigger blow to foot traffic and gross turnover, said Jason Leow, group president, Singapore and international.

Newer assets such as CapitaMall Westgate, RCCQ and Jewel, which opened in 2017-2019, were also still ramping up operations and thus the hardest hit by the pandemic.

As for the impairments, the lion’s share came from three assets: a Hong Kong-listed associate, Lai Fung; a mixed-use site in Chongqing; and the Quest brand of serviced apartments in Australia. Total impairments from the trio amounted to S$688 million, or roughly 80 per cent of the S$861.4 million of impairments in 2020.

CapitaLand is “actively looking to divest” its 20 per cent interest in Lai Fung, a China-focused property development and investment firm, because the latter’s strategic direction has diverged from the group’s, Mr Lim said. This is despite Lai Fung being a profitable company.

The group reclassified the stake, acquired in 2006 for about S$150 million, as an asset held for sale, and booked an impairment based on Lai Fung’s share price at end-2020.

CapitaLand’s loss per share was 32.4 Singapore cents for H2 2020, versus earnings per share of 25 cents a year ago. Half-year revenue rose 9.8 per cent to S$4.51 billion from H2 2019, amid higher handover of units from residential projects in China and Vietnam.

For the whole of 2020, net loss stood at S$1.57 billion, reversing from the S$2.14 billion profit in 2019. The last time it slipped into the red for a full year was in 2001, when it posted a S$281.4 million loss. Full-year revenue grew 4.8 per cent to S$6.53 billion last year.

CapitaLand foresees its operating and financial performance improving this year, building on the “encouraging” trajectory since H2 2020. It is confident of meeting its S$3 billion annual capital-recycling target in 2021.

Citi analyst Brandon Lee highlighted the plans to prioritise capital allocation to “new economy” asset classes such as industrial, logistics and data centres, as well as its expansion into new lodging segments such as multifamily assets and student accommodation, which were less affected by travel restrictions compared to other hospitality assets.

Kevin Goh, group chief executive officer of lodging, noted that CapitaLand recently exited several assets with cap rates of around 2 per cent, and is reinvesting the proceeds into long-stay, more resilient lodging assets with above 5 per cent cap rates.

Citi maintained its “buy” call with a S$3.78 target; Mr Lee expects a slight negative impact on the share price from the net loss, mitigated by the higher payout ratio. DBS recommended a “buy” with a S$3.70 target, describing the Q4 performance as a “positive surprise”.

CapitaLand shares rose S$0.03 or 1 per cent to finish Wednesday at S$3.15.

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