CITY DEVELOPMENTS LIMITED ANNUAL REPORT 2021 OVERVIEW 14 15 CHAIRMAN’S STATEMENT REVITALISING OUR GROWTH STORY 2022 startedwith the optimismof a global economic recovery, with many countries easing international travel restrictions and streaml ining border controls. Despite the impact of the Russia-Ukraine conflict, which remains unpredictable, we stay focused on repositioning and growing our business, pushing ahead on our path towards full financial recovery. One of our Group’s key engines for growth is our hospitality arm. Since the 1970s, we have amassed a portfolio of valuable assets through strategic acquisitions and geographical expansion. Many of these assets have been held at book value for decades. Today, our Group is a sizeable hotel owner and operator, with over 130 hotels and more than 40,000 rooms worldwide. Since the start of the COVID-19 outbreak in 2020, the hospitality industry has been among the sectors hardest hit. Our prescient move to privatise our hotel arm, Millennium & Copthorne Hotels Limited (M&C) in November 2019 placed us in a strong position to restructure the business and steer it decisively through the operational challenges. It also enabled us greater flexibility in unlocking the deep value of M&C’s portfolio at the right time. Divestments In December, we announced the divestment of Millennium Hilton Seoul and its adjoining land for KRW 1.1 trillion ($1.25 billion). I led the acquisition of this asset in the late 1990s, and since then, we have steadfastly invested in the hotel, driven optimal performance and extracted good value from the property. I have always believed that thiswould be an asset that could provide tremendous value to shareholders at the right time and at the right price. The successful divestment of this property (whichwas completed on 24 February 2022), at a significant premium to book value, will enable the Group to realise a substantial gain estimated at $528.8 million. The sale of the Seoul assets marks the Group’s third hotel divestment since the M&C privatisation and themost significant hotel divestment todate. The previous two M&C hotel divestments completed were MillenniumHotel Cincinnati andCopthorne Hotel Birmingham. Apart from hotel divestments, the Group can also benefit from the sale of M&C’s interest in other commercial assets that have been held for longterm investment, such as Tangl in Shopping Centre. Through King’s Tanglin Shopping Pte Ltd, M&C’s wholly-owned subsidiary, we acquired our interest in the property in 1981 and currently own about 34.6% of share value and 60.2% of strata area. A public tender for the collective sale of Tanglin Shopping Centre closed on 22 February 2022 and received a top bid of $868 million, a premium of 10% over the reserve price. Upon completion of the transaction, we will realise a significant capital gain from our investment. Repositioning and Enhancements We have also taken steps to reposition our assets to improve their performance and returns. In 2021, we expanded the footprint of our lifestyle hotel brand, MSocial, with the debut of two properties in the US and Europe – M Social Hotel Times Square New York (M Social NY) and M Social Hotel Paris Opera (M Social Paris). Previously the Novotel New York Times Square, M Social NY opened in May 2021 and the property has turned in a strong performance and has been GOP positive. In September 2021, the former Millennium Hotel Paris Opera opened fol lowing a rebranding as M Social Paris, marking the first M Social property in Europe. We will continue the rollout of the M Social brand, with a second outpost in Europe planned in London’s Knightsbridge and other markets like Phuket and Suzhou. The Group continues to progress with other refurbishmentworks to enhance our assets and prepare themfor the imminent recovery in the global hospitality sector. New Developments In Sunnyvale, California, the headquarters of many technology companies, we completed Phase 1 – a 250-uni t residential development, which is over 80% leased. This asset is part of our Group’s Private Rented Sector (PRS) portfolio, contributing to our recurring income stream. The remaining phase is the 263-roomM Social Sunnyvale hotel. The Group will also be completing the 295-room M Social Suzhou in 2023. Located in the heart of Suzhou Industrial Park and adjacent to the beautiful Jinji Lake, it will be our fifth M Social hotel in the world. Restructuring The Proposed Distribution in specie of units in CDL Hospitality Trusts (CDLHT) will reward CDL shareholders for their steadfast support of our Group and result in the accounting deconsolidation of CDLHT from the Group. With the deconsolidation, the Group would have the potential to book gains on any future sale of assets to CDLHT should the transaction value exceed the carrying book value of the assets. The Group will continue to be CDLHT’s largest unitholder and its committed sponsor following the exercise. In addition to our hotel operations, our strong residential launch pipeline in Singapore and overseas, asset enhancements and redevelopment plans of our existing properties, and our fund management aspirations will be drivers of our growth plans. Our Group CEO has elaborated on our GET strategy in his statement. Since 2010, the Group embarked on our strategic diversification push to build our overseas property development platforms, complementing our core Singapore market. Today, we have an enviable global portfol io with total assets amounting to $23.9 billion, with 45% of the assets in Singapore and the remaining spread across our key overseas markets – China, the UK, Japan and Australia. Going forward, we are committed to renewing, optimising and transforming our asset portfolio to unlock latent value. As at 31 December 2021, the Group has cash reserves of $2.2 billion and total cash and available undrawn committed bank facilities totalling $3.9 billion. Complemented by our capital recycling efforts, we have adequate firepower for expansion. The Group will exercise discipline in our investments and temper our growth ambitions with prudence to maintain a strong liquidity position. Dear Shareholders, The Group returned to profitability with a net profit of $97.7 million and registered a 24.5% increase in revenue to $2.6 billion for FY 2021. Revenue contribution was led by the robust sales performance of our property deve l opmen t segmen t , wh i ch contributed 48% to total revenue. Our hotel operations segment marked a turnaround,with revenue fromall regions – particularly in the US and Europe – showing a strong increase in 2H 2021. Whilst the COVID-19 pandemic persists and geopol itical tensions present uncertainties, the resumption of travel, opening of borders and an overal l resolution to push ahead to open economies provide cause for a positive global outlook. The Group’s hotel operations segment is poised for a long-awaited rebound, boosted by imminent pent-up demand for tourism and corporate travel. In 2022, the Board and Management wi l l swiftly execute our Growth, Enhancement and Transformation (GET) strategy anddeliver onour commitment to enhancing shareholder value. We wi l l continue reviewing and optimising our hospitality portfolio through operational improvements, por t fo l i o res t ruc tur i ng , asset repositioning and strategic divestments to extract value. We will be agile and opportunistic in redeploying our capital to acquire assets in resilient sectors to enhance growth and generate sustainable returns for shareholders. With the Group’s solid underlying fundamentals, a geographical ly diversified portfolio and a healthy balance sheet, wewill continue to chart our post- COVID-19 corporate recovery. APPRECIATION On behalf of the Board, I would like to thank all our shareholders, customers, business associates and partners for your unwavering support. We bade farewell to two Independent Non-Executive Directors during the year, Mr Tan Poay Seng who retired at the 2021 AGM, and Ms Jenny Lim Yin Nee. We also welcomed our new Independent Non-Executive Director, Mrs Wong Ai Ai, who brings fresh insights and strong legal expertise. To my fellow Directors, I amgrateful for your invaluable stewardship, counsel and guidance as we strive to unleash our Group’s fullest potential. To our shareholders, thank you for your confidence in our Group and for journeying with us through the challenging period. For FY 2021, the Board has recommended a final ordinary dividend of 8.0 cents per share and a special final dividend of 1.0 cent per share. Additionally, the Board proposes to reward shareholders with a special distribution in specie of 144,300,000 stapled securities in CDLHT on a pro rata basis, estimated to be valued at 19.1 cents per share. Together with the special interimdividend of 3.0 cents per share declared in mid2021, the total full-year distribution to shareholders is expected to be 31.1 cents per share1. Finally, to the management and staff, thank you for your steadfast dedication and diligence. The resilience and tenacity you have shown in navigating the business challenges truly reflect the Group’s spirit and core values. We successfully weathered one of the worst storms in our past 59 years. Together, we achieved a remarkable turnaround in our financial performance and built strength and resilience from the many lessons learnt. With the Group’s solid underlying fundamentals, a geographically diversified portfolio and a healthy balance sheet, we will continue to chart our growth trajectory with renewed vigour and revitalised perspectives. Kwek Leng Beng Executive Chairman Kwek Leng Beng Executive Chairman 1 Illustrative valuation based on CDLHT unit price of $1.20.
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