In these tough economic times, buying cheap is not easy – even for veteran property tycoons.
City Developments (CDL) executive chairman Kwek Leng Beng said would-be sellers are not budging on several deals he is negotiating, while many organisations are ready to jump in when opportunities arise.
Mr Kwek, speaking yesterday at CDL’s results briefing, is known for deals such as the firm’s 1995 acquisition of the iconic New York Plaza Hotel with billionaire Saudi Prince Al-Waleed from tycoon and now Republican presidential nominee Donald Trump.
“Everywhere in the world when markets are dislocated, the first thing you want to do is wait for prices to come down, and they won’t come down straight away,” he said.
“They will come down (when owners) ask for help… Wait a while, there may be some fire-sale deals. But do bear in mind, every good organisation is keeping cash, hoping the market will crash and they go in cheap. Whether that’s possible, you’ve got to compete on deals.
“We have a history of competing at the right time, at the right price, so I hope to repeat that history.”
CDL yesterday posted a 0.2 per cent rise in second-quarter net profit to $133.8 million, on a 32.4 per cent revenue jump to $1.09 billion.
Earnings were bolstered by its property development division, where revenue surged 105.2 per cent to $551.5 million, largely thanks to Lush Acres Executive Condominium, which is fully sold and achieved its temporary occupation permit in the quarter.
However, this was offset by its hotel operations, where revenue fell 3.6 per cent to $406.6 million. Revenue per available room fell for its hotels in New York, London and Singapore. Revenue from rental properties fell 7.2 per cent to $92.8 million, mainly due to the sale of leasehold interests in three offices as part of the group’s second profit participation securities (PPS) structure at the end of last year.
“In the second half, we intend to have a strong focus on costs,” said chief executive Grant Kelley.
So, for example, two of its upcoming developments – a hotel and serviced apartment in Seoul, and a hotel and apartment complex in Silicon Valley – are undergoing a “value engineering” exercise to make them more cost-efficient. The group has engaged some experts in this area, Mr Kwek said.
As for future PPS structures – which have been anticipated for some of its high-end condos – Mr Kelley said it is exploring possibilities for Nouvel 18, of which it gained full ownership last month.
In May, CDL refuted media reports it was looking at putting up 48 prime condos for about $2,300 psf.
“The assets are all freehold… These areas warrant probably north of $3,000 psf,” said Mr Kelley.
CDL has “no economic incentive to move quickly to execute something in what has been a very challenging market”. It is well capitalised with $3.3 billion in cash, he said.
The high-end market could be bottoming as well, although it is difficult to pinpoint precisely, Mr Kwek noted. The firm may consider creative payment plans for some projects but given the firm’s financially strong position, it may not readily sacrifice margins, he added.
Earnings per share was 14 cents for the quarter, similar to a year earlier. Net asset value was $9.75 at June 30, down from $9.89 at Dec 31.
The board has declared a special interim dividend of four cents a share. CDL’s shares closed two cents lower at $8.87 yesterday.