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Far East Orchard posts 21% fall in 2019 net profit of S$26m

MAINBOARD-LISTED hotel operator and property developer Far East Orchard on Friday said it made a net profit of S$26 million in 2019, down 21 per cent from S$33 million in 2018.

This was due to higher finance costs after the acquisition of five student accommodation properties in the UK during the year, and a fall in share of profit from joint ventures.

Revenue in the 12 months ended Dec 31, 2019 rose 3.4 per cent to S$156 million, lifting gross profit by 27 per cent to S$68 million.

The revenue increase came from higher sales at the group's student accommodation properties in the UK and higher management fee income from hotels under management at Sentosa. The increase was partially offset by lower sales from the hospitality business in Australia and Malaysia due to weak market conditions.

Excluding the currency exchange loss of S$4 million resulting mainly from the weakening of the Aussie dollar against Singdollar, sales would have increased by S$9.2 million instead of S$5.2 million.

Share of profit from joint ventures fell 67 per cent to S$3.2 million due to the absence of contributions from Harbourfront Balmain in Australia, which was fully sold and delivered to buyers by June 2018. The decline in the performance of the hotels in Australia and revaluation losses on a property held by the group's hospitality joint venture also resulted in a further decrease in share of profit.

Full-year earnings per share was 5.95 Singapore cents in 2019, down from 7.64 cents in 2018.

A first and final dividend of six cents has been proposed, unchanged from 2018. The payout date will be announced later.

Net asset value per share was S$2.85 as at Dec 31, 2019.

The group said: "In the near term, travel demand is expected to slow amid the Covid-19 outbreak and the Chinese government's ban onoutbound group tours from China, the world's largest outbound travel market. This is expected to impact our key hospitality markets of Singapore and Australia, which have a fair reliance on visitors from China. The group will closely monitor the Covid-19 outbreak situation in the hospitality markets it operates in and respond appropriately."

This year, the group expects to open The Clan Hotel, a 324-room modern luxury hotel under management in Telok Ayer.

Meanwhile at Village Hotel Albert Court, public construction works for the North-South Corridor which commenced in January 2020 have impacted the hotel's operations. The works are scheduled to be completed in September 2021, the group said.

In Japan, Far East Village Hotel Ariake, which was jointly acquired by the group and parent company Far East Organization, is scheduled to open in July 2020. The 306-room hotel, located in the Ariake district, is near Tokyo Big Sight and the Ariake Arena, one of the venues hosting the 2020 Tokyo Olympics which will also be used to host sports events and concerts after the Olympics.

The group said: "While the Japanese government currently has no plans to cancel or postpone the Olympics, the spread of the Covid-19could adversely impact the Japan hotel market in the short term. In view of the developing situation, the group will continually assess the situation and adjust its strategy as necessary."

As for the property development business, the goup's integrated office development project Woods Square, jointly developed with Far East Organization and Sekisui House, achieved its temporary occupation permit on Feb 5, 2020.

The group said: "The demand for Singapore office spaces and rental growth momentum are expected to slow in 2020 due to the subdued economic growth forecast and cautious business sentiment. The group continues to actively market Woods Square for sale and tenancy."

In prime central London, the group is redeveloping the former Westminster Fire Station into an apartment block. Works are ongoing but expected to be completed beyond 2020. The project team is working towards the revised deliverables for completion, it added.

Far East Orchard shares fell one cent or 0.86 per cent to close at S$1.16 on Friday before the results were announced.