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(1) $247.3 million (31 December 2016: $314.0 million) relates to the Group’s pre-sold development properties as at 31 December 2017.
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The Group achieved revenue of $246.8 million in FY2017, 36% lower than $385.4 million in FY2016. For 4Q2017, the Group achieved revenue of $43.3 million, 53% lower than $93.1 million in 4Q2016. This was mainly due to lower revenue from the Property Development and Property Investment segments.
(a) Property Development
Revenue from the Property Development segment, which made up 78% of the Group’s turnover in FY2017, decreased 41% to $191.8 million in FY2017 from $326.6 million in FY2016. For 4Q2017, revenue from the Property Development segment which contributed 68% of the Group’s turnover, decreased 62% to $29.8 million from $78.6 million in 4Q2016. The decrease was largely due to lower revenue recognition from Jade Residences, Whitehaven, LIV on Wilkie and an absence of revenue recognition from LIV on Sophia following the completion of these projects in 4Q2016 and early 2017. The decrease was partially offset by higher revenue recognition on construction progress and sales of Trilive and Straits Mansions. Although the Group has made good progress in the sales and construction of its projects in Australia and Malaysia, unlike in Singapore, it cannot progressively recognise the revenue as the completed contract method in accounting is adopted for these projects
(b) Hotel Ownership and Property Investment
The Hotel Ownership segment, which contributed 18% to the Group’s turnover in FY2017, registered $44.3 million in revenue as compared to $46.3 million in FY2016. For 4Q2017, the Hotel Ownership segment contributed 28% to the Group’s turnover, registered $12.0 million in revenue as compared to $11.2 million in 4Q2016. The decrease in FY2017 was mainly due to lower revenue per available room (“RevPar”) from the Grand Mercure Singapore Roxy hotel (“GMRH”) as a result of subdued corporate activity caused by continued global economic uncertainty in certain sectors such as the Offshore & Marine and pricing competition from new hotel supply. The increase in 4Q2017 was mainly contribution from newly acquired hotel in Osaka, Japan.
Revenue from the Property Investment segment constituted the balance of 4% of the Group’s turnover and contributed $10.8 million in FY2017 as compared to $12.5 million in FY2016. For 4Q2017, revenue from Property Investment segment contributed $1.6 million as compared to $3.3 million in 4Q2016. The decrease was mainly due to sale of investment property in 59 Goulburn Street in October 2017.
(ii) Cost of sales and gross profit
In line with the decrease in revenue, cost of sales decreased by 38% to $187.3 million in FY2017 from $304.2 million in FY2016. In 4Q2017, cost of sales decreased by 57% to $31.4 million from $73.0 million in 4Q2016.
Gross profit from the Property Development segment contributed $28.0 million or 47% of the Group’s total gross profit in FY2017, while the remaining 53% or $31.6 million was contributed by the Hotel Ownership and Property Investment segments. Gross profit margin from the Property Development segment was 15% in FY2017, as compared to 14% in FY2016. The gross profit margin of the Hotel Ownership segment decreased 4 percentage points to 54% in FY2017 mainly due to lower RevPar from GMRH in FY2017. Gross profit margin of the Property Investment segment was 71% in FY2017 as compared to 72% in FY2016.
In 4Q2017, gross profit from the Property Development segment contributed $4.2 million or 36% of the Group’s total gross profit, while the remaining 64% or $7.7 million was contributed by the Hotel Ownership and Property Investment segments. Gross profit margin from the Property Development segment was 14% in 4Q2017, as compared to 15% in 4Q2016. The gross profit margin of the Hotel Ownership segment decreased marginally by 1 percentage point to 55% in 4Q2017 as compared to 56% in 4Q2016. Gross profit margin from Property Investment segment was 72% in 4Q2017 as compared to 73% in 4Q2016.
The Group’s overall gross profit margin in FY2017 was 24%, higher than the 21% recorded in FY2016. For 4Q2017, the Group’s overall gross profit margin was 28%, compared with 22% in 4Q2016 due to higher margin from hotel ownership segment.
Advance estimates1 from the Ministry of Trade and Industry showed that the Singapore economy grew 3.5% in 2017, in line with earlier forecasts that had projected the economy to grow between 3.0% and 3.5%. For the last quarter of 2017, the economy grew 3.1% year-on-year, slower than the 5.4% growth achieved in 3Q2017.
Australia’s economy also posted positive growth of 0.6% on a year-on-year seasonally adjusted basis for the quarter ended in September 20172. The Reserve Bank of Australia had projected that the country’s GDP will grow around 3.25% for the year ending December 20183.
The Urban Redevelopment Authority’s (“URA”) reported that private residential property prices in 4Q2017 rose 0.8%, continuing the 0.7% growth in 3Q 20174, signaling a turnaround for the sector. For the whole of 2017, prices rose 1.1% compared to the 3.1% decline in the previous year4.
The URA data also showed that developers sold 10,566 units last year, a 32.5% increase compared to 7,972 units sold in 20164.The number of units sold also outweighs the 6,020 units launched in 20174.
Ahead of the property market’s gradual recovery, the Group has prudently replenished its land bank with predominantly freehold sites in Singapore at attractive prices to maximise the yield potential of these projects. The Group looks forward to the launch of its development land sites in 2018 and beyond.
In Australia, residential property prices rose 8.3% during the 12-month period between September 2016 and September 2017, led by year-on-year growth registered in Sydney and Melbourne of 9.4% and 13.2%, respectively5.
The Group’s residential development projects in Australia have received warm reception – The Hensley and Octavia in Sydney are only left with two units for sale each, while the Glebe project that was launched in two phases is currently overall 65% sold.
1 Ministry of Trade and Industry Singapore, January 2, 2018 – Singapore’s GDP Grew by 3.1 Per Cent in the Fourth Quarter of 2017
2 Australian Bureau of Statistics, December 6, 2017 – Australian National Accounts: National Income, Expenditure and Product, Sep 2017
3 Reserve Bank of Australia, November 2017 – Statement on Monetary Policy, Table 6.1: Output Growth and Inflation Forecasts
4 Urban Redevelopment Authority, January 26, 2018 – Release of 4th Quarter 2017 real estate statistics
5 Australian Bureau of Statistics, December 12, 2017 – Residential Property Price Indexes: Eight Capital Cities Sep 2017
As at 5 February 2018, based on units sold from the following ongoing development projects, the Group has total attributable pre-sale revenue of $459.4 million. The profits from the Singapore residential projects will be progressively recognised from 1Q2018 to FY2020.
In addition, the Group has the following development land bank in Singapore:
The Group currently has ten development sites in Singapore as its land bank, including the newly-acquired freehold site, Wilshire, at 22 Farrer Road, and 99-year leasehold Kismis View & 19 Lorong Kismis in Upper Bukit Timah.
Of the ten sites, Roxy-Pacific plans to launch six development sites for sale in FY2018, including The Navian which was launched in January 2018, and the development sites at Upper Bukit Timah Road, Grange Road, Guillemard Lane and Harbour View Gardens at Pasir Panjang and River Valley.
On the hospitality front, latest statistics from the Singapore Tourism Board (“STB”) showed that Singapore hit a record high in tourist arrivals and spending for the second consecutive year, having received 17 million visitors for the year. Similarly, tourism receipts rose 3.9% in 2017 to S$26.8 billion.
For 2018, the STB expects further growth for the tourism sector, forecasting visitor arrivals to grow 1% to 4% to be in the range of 17.6 million to 18.1 million, while tourism receipts are expected to grow between 1% and 3%.
Following the launch of Roxy-Pacific’s first internally-managed hotel in Kyoto, Japan under the new Noku Roxy brand, the Group has rebranded its newly acquired, 154-room hotel in Osaka to Noku Osaka in January 2018. The Group plans to officially open its third self-managed hospitality asset in Maldives in 2018 with the Phuket resort to follow in 2019.
For the Australian office sector6, the September quarter recorded the fastest growth in nominal rents of 0.7%. Property analysts believe the office property sector will continue to provide the best income returns over the next two years, with Victoria recording the best returns of 3.4% and 4.5%, respectively, while New South Wales is projected to achieve 3.3% and 3.8%.
The Group has completed the sale of its office building at 59 Goulburn Street on 16 October 2017. To maintain its recurring income streams, the Group has recycled capital from the sale by entering into agreements to acquire two commercial buildings in Auckland, New Zealand. The first property at 205 Queen Street is a Grade A office building that is 50%-owned by the Group, while the second commercial office building, known as NZI Centre, is strategically located on the western side of Auckland’s Central Business District. The Group has also acquired a 45% stake in an office building located at 312 St Kilda Road, Southbank, VIC 3006, Australia and has acquired Melbourne House, a freehold six-storey commercial and retail building in Melbourne’s Central Business District, Australia.
These properties are expected to contribute positively to its recurring income streams from 2018.
Barring any unforeseen circumstances, the directors expect the Group to be profitable in 2018.
6 National Australia Bank, October 2017 - NAB Commercial Property Survey Q3 2017