Aspial's profit slips after buyers walk away from Australia 108 as property cycle turns

Singapore

FEWER settlements at the Australia 108 mega project in Melbourne have put a dent in Aspial Corp's third-quarter revenue, even as the leveraged property developer counts on fresh cash from handovers to improve its debt profile.

Aspial, which also sells jewellery, posted a net profit of S$5.7 million in the three months ended Sept 30, down 69 per cent from the same period a year earlier.

Revenue fell 60 per cent to S$138.7 million. For Australia 108, revenue can only be recognised when units are handed over to buyers. This is different from residential developments in Singapore, where revenue is recognised based on a "percentage-of-completion" method.

The result is a high net gearing of 2.28 times while liquidity remains tight, said OCBC Credit Research analyst Wong Hong Wei in a report on Friday: "Although Aspial guides that cashflow from Australia 108 will be used to pare down debt, we think that successful settlement of units from Australia 108 is not a certainty."

As at end-March, 88 per cent of the 1,103 apartments in Australia 108 were sold, down from 98 per cent at the end of March 2018. This works out to a cancellation rate of about 10 per cent.

Aspial stopped disclosing the sales rate for Australia 108 a quarter ago, Mr Wong noted. "We will not be surprised if the cancellation rate has further escalated as valuations may have fallen more than the deposit (typically 10 per cent) paid by buyers."

The Australian Financial Review (AFR) reported on Wednesday that certain units in Australia 108 have plunged by as much as 25 per cent in value since sales began in late 2014. Since peaking in 2017, Melbourne's median dwelling price is down 10.9 per cent, reported AFR in July.

Mr Wong said: "With a deposit of just 10 per cent, it seems more economical for buyers to walk away if the valuation has fallen significantly. Moreover, we note that the average sales per square metre for subsequent phases of Australia 108 were sold at higher prices - which could exacerbate cancellation rates come the settlement date."

Construction of the 101-storey skyscraper has reached level 97 and is 91 per cent complete, Aspial said on Friday. The first residents started moving into the lower levels in mid-2018, but some have complained about experiencing loud cracking sounds during high winds, power outages and other defects, according to local media reports.

The builder, Multiplex, in July denied any structural issues with Australia 108, telling residents that "slight movement" is to be expected during extreme winds as the building is still under construction, but will be mitigated by the installation of damper tanks later this year.

Aspial's net cash outflows from operating activities in Q3 was S$10.1 million, owing to on-going construction at Australia 108 and other projects.

Aspial has a cash balance of S$30.8 million as at Sept 30 and S$363.9 million in unsecured borrowings coming due in the next 12 months. This includes S$190 million, 5.3 per cent retail bonds maturing in April 2020 and S$150 million, 5.25 per cent retail bonds maturing in August 2020.

Aspial may require "external capital support" to pay down its debts, Mr Wong said.

Aspial shares closed flat at S$0.154 on Friday after results were released. Net asset value per share as at Sept 30 was 16.56 Singapore cents.