City Developments suffer drop in operating profit for hotels

Despite a 3.4% jump in portfolio RevPar.

According to DBS, City Dev reported a 10% y-o-y decline in net profit to S$120.6m for 3Q13 on a 1% dip in topline to S$822.7m.

The y-o-y dip was largely due to lower property divestment gains, absence of profits from realisation of a private real estate fund as well as slightly weaker hotel operations.

Here's more from DBS:

9M13 earnings of S$462m make up 66% of our full year estimate. Residential and leasing income supported earnings. For the quarter, the group enjoyed higher residential contributions and rental income.

It recognized profits from The Palette, Haus @ Serangoon, as well as 368 Thomson, Buckley Classique, Cube 8, and H2O Residences. Rental income held steady, and helped to partially offset the decline in hotel contributions.

Despite a 3.4% rise in portfolio Revpar, operating profit for hotels decline due to higher operating costs and challenging trading conditions in most Asian destinations and lower Japanese visitors in Seoul.

The group continues to deplete its Singapore landbank with the recent launch of the Venue Residences (60% sold) and Shoppe and the Inflora in Pasir Ris (almost sold out) but remains cautious and selective on landbanking in Singapore, citing high land prices despite some weakening in ASPs of new projects.

Against this backdrop, the group would continue to focus on building its overseas development strategies such as the 28 Pavilion Rd in Knightsbridge and China.

Meanwhile, the leasing of South Beach has commenced with robust ongoing enquiries.

The retail portion is expected to commence pre-leasing in 4Q. Meanwhile potential sale of the Tanglin Shopping Centre through an enbloc exercise could realise divestment gains in the future.

Hotel operations are expected to hold steady for the remaining of this year. Gearing remains healthy at 27% and provides the group with strong balance sheet to tap new landbanking opportunities.