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Unaudited Third Quarter And Nine Months Financial Statements And Dividend Announcement For The Financial Period Ended 30 September 2016

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Profit & Loss

Consolidated Statement of Comprehensive Income

Balance Sheet

(1) ) $409.6 million (31-Dec-15: $342.7 million) relates to the Group’s pre-sold development properties as at 30 September 2016.

Review of Performance

Breakdown of Performance by Segments

Geographical segments

3Q2016 vs 3Q2015

(i) Revenue

The Group achieved revenue of $90.9 million in 3Q2016, 4% higher than $87.6 million in 3Q2015. This was mainly from an increase in revenue from the Property Development segment.

(a) Property Development

Revenue from the Property Development segment, which made up 83% of the Group’s turnover in 3Q2016, increased 5% to $76.2 million in 3Q2016 from $72.8 million in 3Q2015. The increase was largely attributable to higher revenue recognition from Trilive, LIV on Sophia and LIV on Wilkie, partially offset by lower revenue recognition from Jade Residences and Whitehaven.

(b) Hotel Ownership and Property Investment

Revenue from the Hotel Ownership segment, which contributed 13% to the Group’s turnover, decreased by 2% to $11.5 million from $11.6 million in 3Q2015. Grand Mercure Roxy Hotel (“GMRH”) maintained an average occupancy rate (“AOR”), average room rate (“ARR”) and revenue per available room (“RevPar”) of 91.8%, $155.3 and $142.6 in 3Q2016, respectively, as compared to 3Q2015 (AOR: 94.8%, ARR: $168.8 and RevPar: $160.0). The Noku Kyoto hotel recorded AOR, ARR and RevPar of 51.8%, $273.1 and $141.5, respectively, in 3Q2016.

Revenue from the Property Investment segment, which constituted the balance of 4% of the Group’s turnover, maintained at $3.2 million in 3Q2016 and 3Q2015.

(ii) Cost of sales and gross profit

In line with increase in revenue, cost of sales increased by $8.0 million or 12% to $72.5 million in 3Q2016 from $64.5 million in 3Q2015.

Gross profit from the Property Development segment contributed $9.6 million or 52% of the Group’s total gross profit, with the remaining 48% or $8.9 million contributed by the Hotel Ownership and Property Investment segments. Gross profit margin from the Property Development segment decreased from 18% in 3Q2015 to 13% in 3Q2016. This was mainly due to write-back in 3Q2015 for over provision of development cost relating to certain projects completed in the prior period. The gross profit margin of the Hotel Ownership segment decreased 5 percentage points to 57% in 3Q2016 as compared to 62% in 3Q2015 mainly due to lower RevPar in 3Q2016. Gross profit margin of the Property Investment segment decreased 5 percentage points to 71% in 3Q2016 from 76% in 3Q2015 mainly due to leasing and maintenance costs incurred in current quarter.

The Group’s overall gross profit margin in 3Q2016 was 20%, 6 percentage points lower compared to the 26% in 3Q2015.

(iii) Profit for the period

The Group’s other operating income decreased to $0.3 million in 3Q2016 from $2.8 million in 3Q2015 mainly due to higher unrealised foreign exchange gain from revaluation of bank borrowings and fair value gain arising from change of owner-use property to investment property held for rental income in 3Q2015.

Distribution and selling expenses increased by $0.8 million to $1.3 million in 3Q2016 from $0.5 million in 3Q2015 mainly due to marketing and showflat expenses relating to the sales launch of Straits Mansions, Octavia and The Hensley.

Administrative expenses decreased by $0.7 million to $3.2 million in 3Q2016 from $3.9 million in 3Q2015 mainly due to lower provision for directors’ incentive in 3Q2016.

Other operating expenses decreased by $2.8 million to $3.3 million in 3Q2016 from $6.1 million in 3Q2015 mainly due to lower fair value loss on cross currency interest rate swap, partially offset by higher depreciation expenses in 3Q2016.

Depreciation expense increased from $0.7 million in 3Q2015 to $1.4 million in 3Q2016 mainly due to depreciation of new additions following completion of refurbishment works for the Group’s head office in Singapore and for the Noku Kyoto hotel in 3Q2015 and 4Q2015, respectively.

Finance cost increased by $0.7 million to $4.2 million in 3Q2016 from $3.5 million in 3Q2015 mainly due to MTN Series Notes issued in July 2015 and working capital loans obtained to fund new investment in 117 Clarence Street and the resort property in Maldives.

The Group’s share of results from associates after tax for 3Q2016 increased 13% to $4.0 million compared to $3.6 million in 3Q2015 mainly due to higher profits recognised from Eon Shenton, partially offset by the absence of profit recognition from Millage and Natura@Hillview due to Temporary Occupancy Permits (“TOP”) obtained in May 2016 and Sep 2015 respectively.

The Group’s profit after taxation decreased to $8.8 million in 3Q2016 from $13.3 million in 3Q2015.

9M2016 vs 9M2015

(i) Revenue

For the nine months ended 30 September 2016, the Group achieved revenue of $292.3 million, 23% lower than the $379.6 million recorded in 9M2015. This is mainly due to a decrease in revenue from the Property Development segment, partially offset by an increase in revenue from the Hotel Ownership segment.

(a) Property Development

Revenue from the Property Development segment, which made up of 85% of the Group’s turnover, decreased 26% from $336.9 million in 9M2015 to $248.0 million in 9M2016. The decrease was largely due to an absence of revenue recognition from the completion of Centropod@Changi, a commercial development project which obtained its TOP in January 2015. The decrease was partially offset with revenue recognised from Trilive, Sunnyvale, LIV on Wilkie and LIV on Sophia in 9M2016.

(b) Hotel Ownership and Property Investment

Revenue from the Hotel Ownership segment, which contributed 12% to the Group’s turnover, increased 5% from $33.3 million in 9M2015 to $35.0 million in 9M2016 mainly due to contributions from the Noku Kyoto hotel. The GMRH maintained healthy average occupancy rate (“AOR”), average room rate (“ARR”) and revenue per available room (“RevPar”) of 90.4%, $158.7 and $143.5 in 9M2016, respectively, albeit a slight dip from that in 9M2015 (AOR: 89.7%; ARR: $171.0; RevPar: $153.3). The Noku Kyoto hotel recorded an AOR, ARR and RevPar of 50.1%, $325.6 and $163.0, respectively, in 9M2016.

Revenue from Property Investment segment, which constituted the balance 3% of the Group’s turnover, achieved $9.3 million in 9M2016 as compared to $9.4 million in 9M2015.

(ii) Cost of sales and gross profit

Cost of sales decreased by $38.6 million or 14% from $269.8 million in 9M2015 to $231.2 million in 9M2016.

Gross profit from the Property Development segment contributed $33.9 million or 55% of the total gross profit of the Group, with the balance 45% or $27.1 million contributed by the Hotel Ownership and Property Investment segments. The gross profit margin for the Property Development segment decreased 10 percentage points to 14% in 9M2016 from 24% in 9M2015. This was mainly due to higher profit margins from Centropod@Changi in 9M2015. The gross profit margin of Hotel Ownership decreased 3 percentage points to 59% in 9M2016 as compared to 62% in 9M2015 mainly due to lower RevPar in 9M2016. The gross profit margin of the Property Investment segment increased 1 percentage point to 72% in 9M2016 from 71% in 9M2015.

The Group’s overall gross profit margin decreased 8 percentage points to 21% in 9M2016 as compared to 29% in 9M2015.

(iii) Profit for the period

The Group’s other operating income increased by $13.4 million to $21.0 million in 9M2016 from $7.6 million in 9M2015, mainly from higher fair value gains on investment property and higher interest income from fixed deposit.

Distribution and selling expenses increased to $4.3 million in 9M2016 from $1.5 million in 9M2015 mainly due to marketing and showflat expenses relating to the sales launch of Straits Mansions, Octavia and The Hensley.

Administrative expenses decreased by $3.7 million to $10.1 million in 9M2016 from $13.8 million in 9M2015 mainly due to lower provision for directors’ performance bonus for 9M2016, in line with lower profitability of the Group for the period.

Other operating expenses decreased by $2.1 million to $15.0 million in 9M2016 from $17.1 million in 9M2015 mainly due to a reduction in fair value loss on cross currency interest rate swap, partially offset by operating expense in 9M2016 for the Maldives resort and higher depreciation expense.

Depreciation expense increased to $4.2 million in 9M2016 from $3.0 million in 9M2015 mainly due to depreciation following the completion of refurbishment works for the Noku Kyoto hotel and the Group’s head office in Singapore in the second half of 2015.

Finance costs increased from $9.6 million in 9M2015 to $11.5 million in 9M2016 mainly due to MTN Series Notes issued in July 2015 and working capital loans obtained to fund new investment in 117 Clarence Street and the resort property in Maldives.

The Group’s share of results of associates increased to $10.5 million from $9.2 million mainly due to higher profits recognised from Eon Shenton.

The Group’s profit after taxation decreased to $40.3 million in 9M2016 from $72.8 million in 9M2015.

(iv) Cashflow, working capital and Balance Sheet

The Group’s non-current assets comprise property, plant and equipment, investment properties, investment in associates, intangible assets and available-for-sale financial assets. As at 30 September 2016, this amounted to $526.5 million and represented 35% of the Group’s total assets.

The Group’s property, plant and equipment increased $45.4 million to $175.1 million from $129.7 million as at 31 December 2015 and accounted for 33% of total non-current assets of the Group as at 30 September 2016. The increase was mainly attributable to acquisition of the resort in Maldives. As at 30 September 2016, available-for-sale financial assets were valued at $1.5 million and comprised equity securities listed on the Singapore Exchange.

Investment in associates increased $61.4 million to $121.9 million as at 30 September 2016 from $60.5 million as at 31 December 2015 while long term amounts due from associates decreased $35.3 million to $31.4 million as at 30 September 2016 from $66.7 million as at 31 December 2015. This was mainly due to conversion of long term amounts due from associate to investment in associate and equity loans granted to associates in 9M2016.

Investment properties increased to $196.5 million as at 30 September 2016 from $179.8 million as at 31 December 2015. The increase was attributable to the fair value gain on investment property at 59 Goulburn Street, Australia, recognised in 1H2016.

At the Company level, investments in subsidiaries increased to $183.8 million from $110.6 million mainly due to long-term equity loans granted to subsidiaries as investment in subsidiaries.

The Group’s current assets mainly comprise of properties for sale under development, trade and other receivables and cash and cash equivalents. As at 30 September 2016, these assets amounted to $969.4 million and represented 65% of the Group’s total assets. Properties for sale under development amounted to $594.2 million or 61% of total current assets as at 30 September 2016. The increase in properties for sale under development from $516.5 million as at 31 December 2015 were mainly due to completion of acquisition of development sites in Australia and Singapore in 1Q2016.

The Group’s trade receivables amounted to $30.5 million as at 30 September 2016 and comprised mainly of progress payments receivable from purchasers and unbilled revenues for the projects which obtained its Temporary Occupation Permits (“TOP”). The increase in trade receivables of $1.6 million from $28.9 million as at 31 December 2015 was mainly due to progress billings from on-going projects in 9M2016.

The Group’s other receivables comprise mainly deposits, prepayments and other receivables. The decrease in other receivables to $17.6 million as at 30 September 2016 from $30.1 million as at 31 December 2015 was mainly due to transfer of deposits on completion of acquisition of development sites in Australia and Singapore to properties for sale under development and repayment from associates.

At the Company level, other receivables decreased to $7.7 million as at 30 September 2016 from $8.4 million as at 31 December 2015 on receipt of payment for accrued management fees. The amounts due from subsidiaries increased to $261.7 million as at 30 September 2016 from $235.9 million as at 31 December 2015 mainly due from additional funding provided to subsidiaries for new investments in Australia and Maldives.

At the Group level, cash and cash equivalents amounted to $238.7 million as at 30 September 2016.

The Group recorded net cash outflows from operating activities of $54.6 million in 9M2016 as compared to net cash inflows of $169.9 million in 9M2015. This was mainly due to cash outflows for acquisition of development sites and lower operating profits in 9M2016.

The Group recorded net cash outflows from investing activities of $51.0 million in 9M2016, mainly due to long term loans to associates for acquisition of investment property and acquisition of the resort in Maldives.

The Group recorded net cash inflows from financing activities of $28.9 million in 9M2016 mainly due to proceeds from borrowings for completion of purchase of Maldives and development sites and lower repayment of bank borrowings.

The Group’s current liabilities comprise trade payables, other payables, provision for taxation and bank borrowings. As at 30 September 2016, this amounted $658.7 million and represented 65% of total liabilities. Trade payables comprised mainly of progress claims from contractors and retention sums held. Other payables comprise mainly accruals for construction costs for completed projects, accruals for unbilled contractor progress claims, hotel management fees, staff and directors’ performance bonus. The decrease in other payables from $84.8 million as at 31 December 2015 to $79.7 million as at 30 September 2016 was mainly due to payment to an associate company and lower provision for directors’ performance bonus.

At the Company level, the increase in amounts due to subsidiaries from $357.9 million to $383.1 million as at 30 September 2016 was mainly due to inter-group transfers for investment funding purposes.

The Group’s non-current liabilities comprise bank borrowings and deferred tax liabilities. As at 30 September 2016, this amounted to $355.0 million and represented 35% of total liabilities.

As at 30 September 2016, the Group’s total borrowings amounted to $886.4 million, with $416.9 million repayable within one year and $469.5 million repayable after one year. The increase in the total borrowings of $78.7 million from $807.7 million as at 31 December 2015 was mainly from loan drawdowns on completion of acquisition of new development sites.

At the Company level, total borrowings amounted to $107.8 million, with $47.8 million repayable within one year and $60.0 million repayable after one year. The increase in total borrowings of $3.0 million from $104.8 million as at 31 December 2015 was mainly to drawdown of working capital loans to fund the deposit for the acquisition of the resort in Maldives.

Commentary

Property Development

Advance estimates by the Ministry of Trade and Industry (“MTI”) indicated that the Singapore economy grew by 0.6% on a year-on-year (“y-o-y”) basis in 3Q2016, easing from the 2.0% growth recorded in 2Q2016. On a quarter-on-quarter (“q-o-q”) seasonally-adjusted annualised basis, the economy contracted by 4.1%, a reversal from the 0.2% growth registered in the preceding quarter1. The MTI expects the Singapore economy to grow between 1.0% and 2.0% for the whole of 2016.

Latest statistics from the Australian bureau of Statistics showed a 0.5% q-o-q seasonally-adjusted growth in Australia’s GDP for the quarter ended 30 June 2016, or a 3.3% y-o-y seasonally adjusted growth from 2Q20152 . The Reserve Bank of Australia expects growth to remain steady at between 2.5% and 3.5% to December 2016, slightly above the forecast in November with headline inflation of between 2.0% and 3.0% per cent for the same period3.

On the Singapore property market front, the latest flash estimates from the Urban Redevelopment Authority (“URA”) recorded a decrease of 1.5% for 3Q2016 of private residential property prices, compared to the 0.4% decline in 2Q20164. The URA also reported that developers sold 509 private homes in September 2016 up from 468 units in August 2016 and also higher than the 341 units for September 2015. The preliminary tally of units sold for 3Q2016 was 2,069 units, lower than the 2,256 units sold in 2Q2016 and the 2,410 units sold in 3Q2015. In view of healthy take-up for recent launches and units sold from earlier project launches, experts are of the view that the momentum will continue into the fourth quarter and estimates that more units will be sold in 2016 compared to 20155.

For Australia, the price index for residential properties for the weighted average of the eight capital cities rose 2.0% in 2Q2016 on a q-o-q basis and rose 4.1% on a y-o-y basis. Overall, residential property prices rose in Sydney (2.8%), Melbourne (2.7%), Brisbane (1.1%), Canberra (2.2%), Adelaide (0.8%), and Hobart (0.7 %), while prices declined in Perth (-1.2%) and Darwin (-2.4%)6.

The Group launched the Straits Mansions freehold residential project (http://www.straitsmansion.com.sg/) in Singapore and eight-storey development, The Hensley (http://hensleypottspoint.com.au/), in Sydney, Australia. Both projects have received warm reception, selling over 80% of its units shortly after the sales launch in July and June, respectively. Straits Mansions is expected to start contributing positively to the Group’s performance in 2Q2017, while The Hensley is expected to contribute positively upon completion in 2018.


1 www.mti.gov.sg/NewsRoom/SiteAssets/Pages/Singapore’s-GDP-Grew-by-0.6-Per-Cent-in-Third-Quarter-of-2016/AdvEst_3Q16.pdf
2 http://www.abs.gov.au/ausstats/abs@.nsf/mf/5206.0
3 http://www.rba.gov.au/speeches/2016/sp-ag-2016-04-06.html
4 http://www.ura.gov.sg/uol/media-room/news/2016/sep/pr16-61
5 http://www.businesstimes.com.sg/real-estate/developers-private-home-sales-set-to-jump-in-october
6 http://www.abs.gov.au/ausstats/abs@.nsf/mf/6416.0

As at 19 October 2016, based on units sold from the following ongoing development projects, the Group has total attributable pre-sale revenue of $399.2 million, profits of which will be progressively recognised from 4Q2016 to FY2020.

In addition, the Group has the following portfolio of properties:

The Group will focus to launch its remaining development sites in FY2016 and FY2017.

Hotel Ownership

Latest statistics from the Singapore Tourism Board (“STB”) released on 8 September 2016 demonstrated a 11.5% y-o-y growth in international visitor arrivals for the period between January to July 2016, receiving a total of 9.8 million visitors for the 7-month period7.

STB statistics also reflected a 0.6% y-o-y uptick in Standard Average Occupancy Rate for the first seven months of 2016 of 84.9%, albeit a 3.0% decline in Standard Average Room Rate to S$234.5 and a 2.3% drop in Revenue per Available Room to S$199.0 across the same comparative periods8.

Following the launch of the Group’s Noku Roxy hospitality brand name upon the opening of its first upscale boutique hotel in Kyoto, Japan, Roxy-Pacific looks forward to bringing its hospitality brand to the rest of Asia, with a resort in Maldives scheduled next, and Phuket to follow, with a targeted opening by 2019. Where feasible, the Group plans to self-manage these hospitality assets to develop its hotel management expertise and branding, thereby strengthening recurring income streams.

Outlook

Barring any unforeseen circumstances, the directors expect the Group to be profitable in 2016.


7 https://www.stb.gov.sg/statistics-and-market-insights/marketstatistics/copy%20of%20ivastat_jul_2016%20(@)_08sep16).pdf
8 https://www.stb.gov.sg/statistics-and-market-insights/marketstatistics/copy%20of%202016hs(updated%2008sepl16).pdf