SINGAPORE (Nov 1): Deft risk-taking by a handful of midsized developers over the three years to 2015 made them the best performers in terms of the financial metrics by which the Billion Dollar Club companies are measured.

Notably, Oxley Holdings had the highest weighted return on equity, stock return and pretax profit growth over the three years to 2015. All in, it garnered the highest score in the sector. The developers with the next highest overall scores were Ho Bee Land and GuocoLand. Both delivered relatively high stock returns, but Ho Bee did significantly better on ROE, while GuocoLand did better on pre-tax profit growth.

These developers have similar stories. They took concentrated bets on certain segments of the market several years ago, and parlayed their gains into other promising sectors. For instance, Oxley started out developing shoebox apartments, which were affordable to homebuyers, even after land prices in Singapore had soared. It listed in 2010, and soon moved into developing strata-titled offices and industrial properties, which also sold well.

Then, it began venturing overseas in a big way. In the next 12 months, Oxley’s earnings are likely to be driven by its flagship project in London called Royal Wharf. The project is expected to be completed by end-2017, and will contribute to the company’s cash flow and earnings every month until then.

For its FY2016 ended June 30, Oxley reported a 123% surge in earnings to S$295.4 million on a 40% rise in revenue to S$981.3 million. Its net asset value (NAV) stood at 26.79 cents a share as at June 30, up from 23.05 cents a year ago. Meanwhile, Oxley has started to report recurring income from an industrial property in Tampines. From FY2017, its new Novotel- and Ibis-branded hotels on Stevens Road will start contributing to revenue and earnings. Its Shangri-La-branded hotel in Phnom Penh should begin contributing from FY2018.

Ho Bee, on the other hand, made a name for itself by developing luxury properties on Sentosa Island early in the luxury property cycle. In the wake of the global financial crisis, Ho Bee began Hong developing properties in Australia and acquiring investment properties in London.

For 2QFY2016, Ho Bee saw its revenue and earnings surge on recognition of sales from residential projects in Melbourne and the Gold Coast that were completed during the quarter. Its revenue jumped 464% to S$172.8 million and net profit rose 153% to S$42 million. Ho Bee has also fully sold Eporo Tower, a 44-storey residential tower in Melbourne comprising 307 units. The project is scheduled to be completed in 1HFY2017, at which point the company will be able to recognise the revenue and earnings.

However, its UK property investments could be affected by the slump in the pound sterling. In FY2015, Ho Bee acquired three commercial properties, taking its total investments in London up to six commercial properties worth £600 million (S$1.01 billion). The company says it has taken on sterling debt for the properties. Still, the valuation of its investment properties fell S$178.2 million y-o-y to S$2.87 billion as at June 30. The pound fell from S$2.096 to S$1.8167 versus the Singapore dollar in the same period.

As at June 30, its NAV stood at S$4.13 a share, down 10 cents y-o-y, because of its foreign currency translation reserve, which was a negative S$39.2 million, due to the weakening of the pound, Australian dollar and renminbi. Since June 30, the pound has fallen further to S$1.72 against the Singa pore dollar.

In the meantime, Ho Bee is dealing with its unsold units at its projects on Sentosa Island. These include the Turquoise, and the joint venture projects Seascape and Cape Royale. Earlier this year, the company said it had adopted a strategy of leasing these properties. The unsold units at Turquoise and Seascape are about 80% leased, while occupancy at Cape Royale, which is completely unsold, is at 60%.

Elsewhere, GuocoLand’s big bet on China paid off last year. In August 2015, the company booked a S$523.5 million gain on its Dongzhimen project, which underpinned a 155% surge in net profit to S$655.2 million for FY2016 ended June 30. Dongzhimen is a mixed-use project in the heart of Beijing that was the subject of litigation for several years. On Aug 20, 2015, GuocoLand announced it had finally managed to sell the project for RMB10.5 billion (S$2.2 billion).

Heavyweight performers

Among the larger property groups with relatively high overall scores was Hongkong Land Holdings. The company did well on stock return and pre-tax profit growth, but was second from the bottom on weighted ROE.

The property arm of the Jardine group, Hongkong Land owns 450,000 sq m of prime commercial property in Hong Kong, and some 165,000 sq m of office space at One Raffles Quay and Marina Bay Financial Centre in Singapore.

Last year, the company reported a 49.5% jump in net profit to US$2 billion (S$2.78 billion). This included a US$999 million fair value gain. Its operating profit actually fell to US$909.1 million from US$933.2 million. For 1HFY2016, kong Land reported a 146% surge in net profit to US$1.26 billion. This includes a US$870 million fair value gain. The company’s underlying profit fell to US$393 million, compared with US$419 million for 1HFY2015.

CapitaLand was not far behind Hongkong Land in terms of overall score. In fact, it was ahead of Hongkong Land on weighted ROE and stock return. But it trailed significantly on pre-tax profit growth.

For 1HFY2016, CapitaLand reported an 18% decline in earnings to S$512.3 million, on a 4% rise in revenue to S$2.03 billion. The lower earnings were attributed to a one-off gain of S$125.9 million reported in 2015, due to two assets that were held for sale being reclassified as investment properties. They are The Paragon Towers 5 and 6 in Shanghai’s old French Concession and Raffles City Changning Tower 3. CapitaLand’s book value of S$3.95 a share as at June 30 was 6.2% lower than as at Dec 31.

As at June 30, China accounted for about S$20 billion, or 45%, of CapitaLand’s total assets. Its home market of Singapore accounted for S$16.3 million, or 36%, of its total assets. This year, the renminbi has weakened some 6.9% versus the Singapore dollar. According to CapitaLand, a 1% depreciation in the renminbi against the Singapore dollar will reduce its net profit by 0.2% and its shareholders’ funds by 0.9%.

Rebound coming?

Now, some analysts reckon that the property market in Singapore could be approaching a trough. A rebound from here could give local developers an opportunity to clear their unsold inventory and reposition themselves for growth.

“We believe high-end residential is bottoming, given significant volume improvement, [the] return of foreigners, benign pace of price decline and cheap pricing versus global peers,” a recent JPMorgan report states. “Volumes could improve further from innovative schemes and bulk-purchase deals. Decent supply-demand dynamics and historically low unsold inventory provide a favourable backdrop,” the report adds.

According to Brandon Lee, an analyst at JPMorgan, supply is set to fall. “We have seen the bulk of the supply over the last three to four years. Of the projects that were launched in 2010-2011, a lot were [being completed] in 2012-2015. From 2016, you have 3% growth; and next year, you have 4% growth. After that, it’s less than 1%,” he estimates.

Increasingly, too, demand has returned. In 2Q2016, the volume of transactions rose more than 30% q-o-q to 767 units, valued at S$2.4 billion, a three-year high. “Foreigners returned in 1Q and 2Q. The fact that they have started to come in suggests that pricing is attractive enough for PRs [permanent residents] and foreigners to pay that Additional Buyer’s Stamp Duty,” Lee says.

The biggest beneficiary of this is likely to be City Developments. JPMorgan says 16% of CDL’s revalued net asset value (RNAV) exposure is to the high-end segment of the market. For 1HFY2016, CDL’s revenue rose 10.7% to S$1.8 billion, but net profit fell 6.8% to S$239.1 million. CDL has securitised more than S$5 billion of property since 2014 through the issue of an instrument called Profit Participation Securities. Analysts expect another PPS transaction soon.

CDL achieved only a middling overall score. Its weighted ROE was relatively high, and it did not fare too badly on pre-tax profit growth. But it was weighed down by a relatively lacklustre stock return over the three years to 2015.

The Edge Singapore has started giving the largest locally listed companies special coverage and recognition under The Billion Dollar Club. Membership to the BDC is not by invitation but by eligibility. To qualify, a company must have a minimum market capitalisation of S$1 billion. At the cut-off date of June 30, 2016, there were 101 companies that qualified for the BDC.