First Sponsor Q4 profit up 36.5% to S$58m, in talks to acquire hospitality asset in Germany

FIRST Sponsor Group's fourth-quarter net profit rose 36.5 per cent to S$58.2 million from S$42.7 million a year ago, the mixed property developer announced on Thursday before the market opened.

The group also said separately that it is in talks to buy a German hospitality asset through a share deal expected to be in the region of 50 million euros (S$76.7 million).

For the full year to Dec 31, 2018, the company posted S$113 million in earnings, up 28 per cent from S$88 million the year before.

Earnings per share (EPS) for the fourth quarter rose 32.7 per cent to 8.73 Singapore cents from 6.58 cents the year before. Meanwhile on a full year basis, EPS was at 16.72 cents, up 22.9 per cent from 13.61 cents the year before. Shares for First Sponsor closed at S$1.23 on Wednesday evening, down 3.5 per cent or S$0.05.

First Sponsor is recommending a one-tier dividend of 1.3 Singapore cents per ordinary share, which is 8.3 per cent higher from the year before. It added that it would also like to reward shareholders with a bonus warrant for every 10 shares held, with each bonus warrant carrying the right to subscribe for 1 Series-2 PCCS.

Fourth quarter revenue fell 26.8 per cent to S$132 million from S$180 million the year before. This was due mainly to a decline in revenue from sale of properties and property financing of S$44.3 million and S$10.5 million respectively. The decrease was partially offset by the increase in hotel operations of S$5.8 million.

First Sponsor said the increase in profit before tax was due mainly to fair value gain on the group's investment in East Sun, higher share of after-tax profit from associates and joint ventures, higher gross profit contributions from the property development and property holding business segments and higher fair value net gain on cross-currency swaps net of foreign exchange loss.

The drop in revenue from sale of properties in the fourth quarter was due mainly to the recognition of revenue from fewer residential units in the company's Millennium Waterfront project. Usually, revenue from sale of properties is recognised when the construction of the properties has been completed and ready for delivery.

Fourth quarter revenue from the property financing business fell 34 per cent to S$20.2 million, from S$30.7 million the prior year. This decrease was due mainly to the absence of net penalty interest income of S$22 million recognised in the previous year, partially offset by S$8.3 million increase in revenue from PRC property financing attributable to the higher average PRC loan portfolio held for the period, and S$2.3 million increase in revenue from European property financing. This was mainly driven by loans granted in respect of the Bilderberg Portfolio, as well as the Hilton Rotterdam hotel and Le Méridien Frankfurt hotel acquired in January 2018.

Revenue from the company's hotel operations segment rose by S$5.8 million or 106 per cent to S$11.2 million in the fourth quarter, from S$5.4 million the previous year. This was due mainly to a full quarter's contribution from the 24.7 per cent-owned Hilton Rotterdam hotel, which has been leased by the group since February 2018, the revenue growth from the two Wenjiang hotels as well as the adjoining hotspring which commenced operations in October 2017.

First Sponsor's gross profit decreased by S$5.2 million or 6.9 per cent to S$70 million in the fourth quarter, compared with S$75.2 million the year before. The decrease was due mainly to the lower gross profit from property financing of S$10.3 million, partially offset by higher gross profit from hotel operations and sale of properties of S$2.7 million and S$2.1 million in the fourth quarter.

The company also said it would be embarking on a second equity fund raising exercise to further strengthen its balance sheet. This is to arm itself with the necessary financial resources to "capitalise on any expansion opportunity".

In a separate exchange filing on Thursday, the company said it is "currently in negotiations with several parties" to acquire a hospitality asset in Germany as well as its operations via a share deal for around 50 million euros.

The discussions are on-going and no definitive terms or formal legal documentation have been agreed upon or entered into between the parties, the company said.

Since 2015, First Sponsor has embarked on initiatives to accelerate its growth through selective developments and acquisitions in Europe. The group has built up a portfolio of 26 property holding (including hotels) and development assets in the Netherlands, Italy and Germany.

"The potential transaction (if it materialises) offers a good opportunity for the group to build up a larger recurrent income stream for its property holding business segment and to further improve its geographical diversification," First Sponsor said.