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Articles

Higher profits for Far East driven by property investment business - 2018 Annual Report

2020/03/06

Source: Pixabay

Far East Orchard Limited (Far East)

Source: Far East

A member of Far East Organization, Far East is a property developer, and hospitality owner and operator. Established since 1967, the company has delivered residential, commercial, hospitality and purpose-built student accommodation in Australia, Malaysia, Singapore and the UK.

FY 2018 Financial Highlights:

Source: Far East 5-Year Financial Highlights

  • Total sales for Far East declined marginally from SGD 151.6 million in FY 2017 to SGD 150.9 million in FY 2018.
  • However, if the effects of foreign exchange translation losses amounting to SGD 2.9 million were excluded, total sales actually rose by SGD 2.2 million year-on-year.
  • Meanwhile, gross profit grew from SGD 52.2 million in FY 2017 to SGD53.4 million in FY 2018.
  • Consequently, profit attributable to equity holders increased from SGD 21.8 million in FY 2017 to SGD 32.9 million in FY 2018.

Performance Drivers:


Source: Far East 5-Year Financial Highlights

Performance Drivers (Positive Factors)

  • Hospitality Business (Singapore, Malaysia and the UK)

Far East recorded higher sales from it Hospitality business in Singapore mainly due to Orchard Rendezvous Hotel following its rebranding from Orchard Parade Hotel.

The company’s Hospitality business in Malaysia and the UK also experienced higher sales and gross profit – resulting from the continued ramped-up operations of Oasia Suites Kuala Lumpur, as well as the opening of two student accommodation properties in Newcastle upon Tyne in September 2017.

  • Fair Value Gains on Investment Properties

Far East recorded an increase in fair value gains on investment properties in Singapore and student accommodation properties in the UK, from SGD 5.9 million in FY 2017 to SGD 16.6 million in FY 2018. This increase came on the back of improvement in the underlying operating performance and compression in capitalization rates, as well as revaluation gains on hospitality assets in Perth, Australia and Malaysia – but partially offset by currency translation losses arising from monetary assets and liabilities denominated in Australian Dollar which depreciated significantly against the Singapore Dollar in FY 2018.

  • Share of Profit of Associated Companies

Far East’s share of profit of associated companies was higher due to increased contributions from FEO Hospitality Asset Management, which recognized a one-off acquisition fee from the acquisition of Oasia Hotel Downtown by Far East Hospitality Real Estate Investment Trust in April 2018.

  • Share of Profit of Joint Ventures (Europe)

Far East received higher profit from its hospitality joint venture in Europe, driven by strong performance of the hotels in Germany in FY 2018.

Performance Drivers (Negative Factors)

  • Hospitality Business (Australia)

Far East experienced lower sales and gross profit contribution from their Hospitality business in Australia due to weak market conditions in Perth and Melbourne.

  • Share of Profit of Joint Ventures (Australia)

Far East’s share of profit of joint ventures for dropped from the SGD 11.8 million in FY 2017 to SGD 9.6 million in FY 2018. This was primarily due to lower share of profit from its joint venture property development project in Australia, Harbourfront Balmain, as the majority of the share of profit was recognized in the prior year. Further, the company recognized a one-off provision for an onerous hospitality lease agreement in Melbourne.

Source: Far East FY 2018 Annual Report

 

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