City Developments (CDL) reported 2Q09 net profit of S$140.0mn, a fall of 15.3% y-y, though up 68.3% q-q. The pick-up in quarterly earnings was primarily due to higher contributions from the property development segment, reflecting the booking of pre-sales sold during 2007-2008 as well as the marked pick-up in pre-sales in 2Q09 sales resulting in maiden profit contributions from The Arte@Thomson.

During 1H09, CDL sold 537 residential units (including its share of JV projects), equating to S$665mn. In the last 7 weeks, total unit sales have risen to 1,031 units (see Exhibit 2), equating to sales of circa S$1.34bn.

CDL in its outlook statement suggested that the momentum in residential sales was “sustainable”. Residential sales by the group in the last 7 weeks has been positive, and better than our expectations - selling some 494 units. The Gale: 296 units sold out of 329 units (90% take-up), Volari: 82 units sold out of 85 units (96% take-up), with a further 96 units sold in the Livia (it sold 148 units in 1H09). But management was quick not to characterise current market activity as speculative in nature, suggesting that “pent-up demand”, “developers’ pricing” and “low interest rates” were encouraging buyers back to the market. That said, at the results briefing management suggested that the government could extend the confirmed list or remove the interest rate absorption scheme (IAS) as a means of cooling current market activity.

New launches for the remainder of the year include Hong Leong Garden site (West Coast) – 396 units, the former Albany and Thomson Mansion site – 160 units, and potentially the Quayside Collection in Sentosa.

In CDL’s listed hotel subsidiary Millennium and Copthorne, a marginal improvement in revenue and better cost management in 2Q09 (vs 1Q09) underpinned 2Q09 earnings - operating margin improving to 14.7% in 2Q09 (vs 9.6% in 1Q09), though down on 2Q08’s 22.2%.

According to management, “extreme" pricing pressure has seen average room rates fall 12.6%. New York's RevPAR fell 34.7% y-y in 2Q09. In Singapore, RevPar fell the greatest in the portfolio - down 37.7% y-y in 2Q. Occupancy slipped 14.2pps to 70.5% (down from 84.7% in 2Q08).

While July RevPAR continued to decline 18.3% y-y, management indicated that "there are signs that the decline is slowing in New York and Singapore". Earnings based on the 1H09 numbers were broadly in line with our expectations.