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Financials

Unaudited Second Quarter And Half Year Financial Statements And Dividend Announcement For The Financial Period Ended 30 June 2018

Financials Archive

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Profit & Loss

Consolidated Statement of Comprehensive Income

Balance Sheet

* $204.1 million (31 December 2017: $247.3 million) relates to the Group’s pre-sold development properties as at 30 June 2018.

Review of Performance

(i) Operating Segments

(ii) Geographical segments

Revenue and gross profit analysis

(i) Revenue

The Group achieved revenue of $83.3 million in 1H2018, 42% lower than $143.2 million in 1H2017. For 2Q2018, the Group achieved revenue of $37.0 million, 52% lower than $77.8 million in 2Q2017. This was mainly due to lower revenue from the Property Development and Property Investment segments, partially offset by higher revenue from Hotel Ownership segment.

(a) Property Development

Revenue from the Property Development segment, which made up 65% of the Group’s turnover in 1H2018, decreased 53% to $54.0 million in 1H2018 from $115.5 million in 1H2017. For 2Q2018, revenue from Property Development segment made up 61% of Group’s turnover, decreased 65% to $22.4 million in 2Q2018 from $63.8 million in 2Q2017. The decrease was largely due to lower revenue recognition from Trilive, which was TOP in June 2018, and absence of revenue recognition from Jade Residences, Whitehaven and LIV on Wilkie following the completion of these projects in 2017. The decrease was partially offset by higher revenue recognition on construction progress and sales of The Navian 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 30% to the Group’s turnover in 1H2018, registered $25.2 million in revenue as compared to $21.4 million in 1H2017. For 2Q2018, Hotel Ownership segment contributed 34% to the Group’s turnover, registered $12.5 million in revenue as compared to $10.9 million in 2Q2017. The increase was mainly due to contribution from newly acquired hotel in Osaka, Japan and higher revenue from resort in Maldives after its partial opening.

Revenue from the Property Investment segment constituted the balance of 5% of the Group’s turnover and contributed $4.1 million in 1H2018 as compared to $6.3 million in 1H2017. For 2Q2018, revenue from Property Investment segment contributed $2.1 million as compared to $3.1 million in 2Q2017. The decrease was mainly due to the sale of investment property in 59 Goulburn Street in October 2017, partially offset by revenue generated from NZI Centre which was acquired in December 2017.

(ii) Cost of sales and gross profit

In line with the decrease in revenue, cost of sales decreased by 49% to $57.3 million in 1H2018 from $113.2 million in 1H2017. In 2Q2018, cost of sales decreased by 62% to $24.4 million from $64.1 million in 2Q2017.

Gross profit from the Property Development segment contributed $10.4 million or 40% of the Group’s total gross profit in 1H2018, while the remaining 60% or $15.6 million was contributed by the Hotel Ownership and Property Investment segments. Gross profit margin from the Property Development segment was 19% in 1H2018, as compared to 12% in 1H2017 mainly due to higher profit margin from Straits Mansions. The gross profit margin of the Hotel Ownership segment decreased 3 percentage points to 51% in 1H2018 mainly due lower margin from Maldives. Gross profit margin of the Property Investment segment was 65% in 1H2018 as compared to 71% in 1H2017 mainly due to adjustment of cost on 59 Goulburn Street in 2Q2018.

In 2Q2018, gross profit from the Property Development segment contributed $4.9 million or 39% of the Group’s total gross profit, with the remaining 61% or $7.7 million contributed by the Hotel Ownership and Property Investment segments. Gross profit margin from the Property Development segment was 22% in 2Q2018, as compared to 9% in 2Q2017 mainly due to higher profit margin from Straits Mansions and Trilive. The gross profit margin of the Hotel Ownership segment decreased 2 percentage points to 53% in 2Q2018 as compared to 55% in 2Q2017 mainly due to lower margin from Maldives. Gross profit margin of the Property Investment segment decreased 14 percentage points to 56% in 2Q2018 from 70% in 2Q2017 due to adjustment of cost on 59 Goulburn Street in 2Q2018.

The Group’s overall gross profit margin in 1H2018 was 31%, higher than the 21% recorded in 1H2017 mainly due to higher contribution from Hotel Ownership segment which has a higher profit margin. For 2Q2018, the Group’s overall gross profit margin was 34%, compared with 18% in 2Q2017.

Commentary

Property Development

Latest flash estimates from the Ministry of Trade and Industry showed that Singapore’s economy expanded 3.8 per cent year-on-year in the second quarter of 2018. This was a moderation from the 4.3% year-on-year growth in the first quarter of 2018. On a quarter-on-quarter seasonally-adjusted annualised basis, the economy expanded at a slower pace of 1.0 per cent compared to the 1.5 per cent growth in the preceding quarter.1

Australia’s economy also posted growth – its economy grew 1.0% in 1Q2018 on seasonally-adjusted basis2 . The Reserve Bank of Australia had projected that the country’s GDP will grow around 3.0% on average for the year ending December 20183.

In Japan, the economy contracted 0.6% quarter-on-quarter in 1Q2018 while full-year GDP growth is forecasted at 1.1%4.

Singapore

Latest statistics from the Urban Redevelopment Authority (“URA”) showed a 3.4% increase in the prices of private residential properties in 2Q2018, compared to the 3.9% increase in 1Q20185. This marks the fourth consecutive quarter of price increase and leaves the URA’s overall private residential price index at just 3.6% below its last peak of 3Q2013 and 9.1% above the last trough of 2Q2017.

Recently, the Government announced a raise of Additional Buyer’s Stamp Duty (ABSD) rates and tightening of Loan-to-Value (LTV) limits to cool the property market and keep prices increases aligned with economic fundamentals6. While the cooling measures could slow market developments, it does not equate a total standstill – analysts believe that the market is still in the nascent stage of recovery and to buyers, the adjusted property prices may still be affordable and cooling measures are unlikely to dampen the market psychology severely7. Furthermore, majority of the buyers are first-timers who are less affected by the cooling measures in terms of ABSD hikes, discounting the slight reduction in borrowing.

The Group will continue to monitor the market closely in view of its planned upcoming property launches, and continue to exercise prudence in site acquisitions.

Australia

In Australia, the price index for residential properties for the weighted average of eight capital cities rose 2.0% to the March quarter 2018 on a year-on-year basis albeit a 0.7% decline on a quarter-on-quarter basis. During the quarter, Sydney and Brisbane registered a 2.0% and 6.2% growth on a year-on-year basis, although both cities registered a decline of 0.7% and 0.6% on a quarter-on-quarter basis, respectively8. Residential prices in Australia have been facing headwinds such as tougher rules from regulators and a tightening in borrowing standards by lenders resulting in a pullback on demand9.

The Group’s residential development projects in Sydney have received warm reception – The Hensley and Octavia are only left with two units and one unit for sale respectively, while West End Glebe that was launched in two phases is currently overall 80% sold.

Pre-sales for the New World Towers project in Brisbane, in which the Group has 40% stake, have been stagnant after achieving 124 units sales during the phase 1 launch. Given the existing weak residential market fundamentals in Brisbane, the joint venture parties are currently reviewing the various options for the 435-units project which includes delaying its subsequent launches. On prudence, the Group has not included the units pre-sold for this project in the pre-sale revenue table as disclosed in the following page.

As at 20 July 2018, based on units sold from the following ongoing development projects, the Group has total attributable pre-sale revenue of $605.0 million, the profits of which will be recognised from 3Q2018 to FY2021.

In addition, the Group has the following development land bank in Singapore:

Following the Group’s acquisition of a freehold residential site at 27 Moulmein Rise in May 2018, it currently has eight development sites in Singapore as its land bank, of which Roxy-Pacific plans to launch five development sites for sale in FY2018, depending on market conditions.

In Australia, the Group has completed the acquisition of Melbourne House, a freehold six-storey commercial and retail building in Melbourne’s Central Business District, Australia, that is planned to be redeveloped into a mixed-use development, comprising hotel and retail units.

Hotel Ownership

Latest statistics from the Singapore Tourism Board (“STB”) showed a 6.7% year-on-year growth in international visitor arrivals for the first four months of 201810. Hotel statistics also showed a positive growth – average occupancy rate grew 1.4%, total room revenue jumped 9.4%, average room rates increased 2.8% while revenue per available room rose 4.4%11.

For 2018, STB remains optimistic, forecasting tourism receipts to be in the range of $27.1 to $27.6 billion, an increase of 1% to 3%, while international visitor arrivals is expected to be in the range of 17.6 to 18.1 million, an increase of 1% to 4%.

According to Japan National Tourism Organisation, the estimated number of international travelers to Japan in February 2018 was about 2.5 million (+23.3% from the previous year), being the best February ever. For the month of May 2018, it has reached 2.675 million (+16.6% from the previous year)12.

The Group’s flagship Grand Mercure Singapore Roxy hotel, and self-managed boutique hotels in Japan – Noku Kyoto and Noku Osaka – continue to contribute healthy recurring income while its resort in Maldives, Noku Maldives, which commenced operations in December 2017, has received warm reception since its soft opening and has maintained strong occupancy, notwithstanding last stages of ongoing renovations. It is expected to be in full operation by September 2018, while its counterpart in Phuket is targeted to open in 2019.

Property Investment

For the Australian office sector, 1Q2018 saw a 4% rise in the NAB Commercial Property Index, with expectations for the overall property market to continue growing in the next 1 to 2 years, except for Queensland. New South Wales and Victoria is expected to lead the growth, while Western Australia is expected to improve the most13.

The Group has recently divested its Grade A commercial building, 117 Clarence Street in Sydney, like it has successfully done so with 59 Goulburn Street in 2017 to unlock shareholder value and redeploy capital into other yield-accretive investments. The sale is expected to complete on 17 August 2018.

With the divestment of 59 Goulburn Street, the proceeds was redeployed into the acquisitions of 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. These properties have commenced revenue contribution this financial quarter.

Outlook

Barring any unforeseen circumstances, the directors expect the Group to be profitable in the financial year ending 31 December 2018.

1 Ministry of Trade and Industry Singapore, July 13, 2018 – Singapore’s GDP Grew by 3.8 Per Cent in the Second Quarter of 2018
2 Australian Bureau of Statistics, June 2018 – Australian National Accounts: National Income, Expenditure and Product, Mar 2018
3 Reserve Bank of Australia, February 2018 – Statement on Monetary Policy, Table 6.1: Output Growth and Inflation Forecasts
4 DBS Treasures Research, May 16, 2018 – Japan: Recovery intact but faces more risks
5 Urban Redevelopment Authority, July 27, 2018 – Release of 2nd Quarter 2018 real estate statistics
6 Monetary Authority of Singapore, July 5, 2018 – Raising Additional Buyer’s Stamp Duty Rates and Tightening Loan-to-Value Limits to Promote a Stable and Sustainable Property Market
7 Business Times, July 10, 2018 – What cooling measures? Weekend buyers still flocking to showflats
8 Australian Bureau of Statistics, Mar 2018 - Residential Property Price Indexes: Eight Capital Cities
9 Business Times, July 3, 2018 – Aussie home prices slide for 9th month in June
10 Singapore Tourism Board, June 19, 2018 – International Visitor Arrivals Statistics
11 Singapore Tourism Board, June 19, 2018 – Hotel Statistics 2018
12 Japan National Tourism Organisation – Japan Tourism Statistics
13 National Australia Bank, April 18, 2018 – NAB Quarterly Australian Commercial Property Survey Q1 2018

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