The past year has witnessed the destabilisation of the global business environment and economic outlook by volatile energy prices, rising interest rates and geopolitical tensions. Despite this, I am happy to report that First Sponsor has navigated through this difficult period to achieve an annual net profit of S$131.3 million for FY2022, an 8.1% growth from the previous year. This is the second highest annual net profit recorded by the Group since its inception.
In consideration of the Group’s financial performance, the Board has recommended a final tax-exempt (one-tier) cash dividend of 2.70 Singapore cents per share. If approved, the total dividend declared for FY2022 will be 3.80 Singapore cents per share, which is the Group’s highest dividend payout and 10.1% higher than that of FY2021. The Board is cautiously optimistic of our recovery post-Covid-19 and will continue to work towards a stable dividend payout with a steady growth when appropriate, subject to the successful implementation of the Group’s business strategy and prevailing market conditions.
The Group’s key focus in FY2022 was the further expansion of its footprint in the Greater Bay Area (“GBA”), having invested about S$656 million to acquire four Dongguan development land plots either on its own or with joint venture partners. As a result of the record purchase of development land plots in FY2022, the Group will see a record number of development projects under pre-sale in FY2023. The sporadic Covid-19 related lockdowns in Dongguan, Guangzhou and Chengdu during FY2022 adversely affected the pre-sales of the Group’s development projects in these cities. Nevertheless, the Group achieved healthy residential pre-sales for its 17.3%-owned Humen Time Zone and 48.2%-owned Humen Oasis Mansion projects. New pre-sale launches were met with a more modest sales response, such as for the 36%-owned Humen Central Mansion project. The Group remains confident of the medium-term prospects of the GBA region as the region and the PRC continue its post-Covid-19 recovery.
The Group’s property holding (hospitality) arm performed significantly better in FY2022 than in FY2021. In particular, the Group’s European operating hotels recorded marked improvements in earnings before interest, tax, depreciation and amortisation (“EBITDA”), driven by both increased corporate and leisure businesses despite high energy and labour costs as well as the discontinuation of government subsidies for Covid-19. In the PRC, the Chengdu Wenjiang hotels achieved a slightly lower EBITDA in FY2022 as compared to FY2021 due to the hotels being used as quarantine hotels on several occasions during FY2022.
In FY2022, the Group took a more prudent approach in managing its loan book in view of the difficult property market conditions in the PRC. Property financing revenue decreased in FY2022, due mainly to lower average loan books in both the PRC and Europe.
The Group continued to perform well in FY2022, achieving an annual net profit of S$131.3 million, an 8.1% increase from FY2021 and the second highest annual net profit recorded by the Group since its inception.
As at 31 December 2022, the Group’s equity attributable to owners of the Company, consolidated gross borrowings and consolidated net gearing ratio based on book value amounted to approximately S$1.8 billion, S$1.0 billion and 0.39 respectively.
The Group continues to adopt a foreign exchange risk management strategy that takes into account the changing business and economic outlook of the various regions that the Group operates in. The European and Australian investments of the Group are substantially hedged via a combination of local currency-denominated borrowings and financial derivatives. Given the increase in the Group’s RMB-denominated assets, the Group has increased its hedge against RMB exposure which remains a key business risk to the Group. The Group will continue to monitor the RMB exchange rate and cost to manage its RMB exposure accordingly. As at 31 December 2022, the Group recorded a cumulative translation loss of S$64.1 million in reserves (Dec 2021: gain of S$91.7 million) mainly arising from the Group’s exposure to RMB which depreciated against S$ in FY2022.
The Group’s PRC property development portfolio expanded significantly with the acquisition of four Dongguan development land plots in FY2022. The Group’s contribution to the land purchase consideration amounted to an aggregate of approximately S$656 million. As a result of this record purchase of development land plots, the Group will have a record number of development projects under presale in FY2023.
During FY2022, despite a number of sporadic Covid-19 related lockdowns in the key cities that the Group operates in, namely, Dongguan, Guangzhou and Chengdu, the Group was able to achieve reasonable residential pre-sale results for its projects. The 17.3%-owned Humen Time Zone saw 74% of the 1,886 launched units sold as at 10 March 2023, out of which 841 units were sold in FY2022. The 48.2%-owned Humen Oasis Mansion also saw healthy presales with approximately 52% of the 490 launched units sold since it launched its first pre-sale on 31 March 2022, out of which 206 units were sold in FY2022. Sales were modest for the 36%-owned Humen Central Mansion, which achieved 32 units sold as at 10 March 2023 since its first pre-sale launch of two residential apartment blocks comprising 156 units on 31 December 2022. In the Netherlands, the redevelopment of the Dreeftoren Amsterdam redevelopment project is on track for completion around late 2024 and 4Q2025 for the office and residential towers respectively. Further, the Group executed a letter of intent with the Amsterdam municipality on 21 October 2022 to redevelop the Meerparc property in Amsterdam into a mixed residential/office property with a higher plot ratio. Discussions with the municipality are ongoing on the design, program and specifications of the building, including the residential mix of social, mid-rent and free market units, with the aim of completing the design process and applying for the building permit in 2H2023.
Likewise, the Group made further progress on the City Tattersalls Club (“CTC”) project in Sydney, Australia where its 39.9%-owned developer trust signed down a construction agreement with Richard Crookes Constructions as the main contractor on 23 February 2023, with a contract price comprising fixed and variable components. The CTC project, upon completion, will comprise a refurbished club, a 110room hotel and 241 residential units. The developer trust will monitor the market conditions before deciding on an appropriate time to launch the residential units for pre-sale. The Group will take a 70.5% stake in the hotel component.
Following the first handover of six of the eight fully sold residential apartment blocks in December 2021, the remaining two fully sold residential apartment blocks were handed over in late September 2022. Handover of the sold units of the 202-unit SOHO cluster commenced in late December 2022.
The 27%-owned Skyline Garden project in Dongguan commenced its first handover of the four fully sold residential blocks in late November 2022. The last residential apartment block comprising 364 units which would be handed over in FY2023 is essentially fully sold.
The 17.3%-owned Humen Time Zone saw healthy residential pre-sale results with the project selling 841 of the 1,886 launched units from Phase 1.1 and Phase 1.2 in FY2022. As at 10 March 2023, since its first pre-sale in August 2021, the project has sold a total of 1,452 units, representing 74% of the 1,886 launched units.
All six residential blocks and two SOHO loft blocks in Phase 1.1 were launched for pre-sales and achieved sales rates of 72% and 96% respectively as at 10 March 2023.
In total, four out the seven residential apartment blocks comprising 612 units of Phase 1.2 were launched for presales in 2H2022, of which 78% or 480 units were sold as at 10 March 2023.
Barring any unforeseen circumstances, Phase 1.1 is expected to commence its first handover of the residential apartment blocks in 2023.
As at 10 March 2023, there were three remaining inhabitants who have not agreed on the resettlement compensation terms. Approval for the re-zoning application is expected to be obtained in 2Q2023.
The 48.2%-owned Humen Oasis Mansion, which launched its first pre-sale of residential units on 31 March 2022, has since launched a total of 5 residential blocks 490 units for pre-sales. Buyer demand has been good, with the project achieving pre-sales of approximately 52% as at 10 March 2023.
The Group’s interest in this project is primarily through the subscription of approximately S$89 million and S$97 million of senior and junior convertible bonds (“JCBs”) with an annual coupon rate of 12% and 15% respectively. As at 10 March 2023, the Group’s remaining economic exposure was effectively in the form of S$63.3 million JCBs which are likely to be fully redeemed in 2023.
The Group’s 36%-owned Humen Central Mansion launched its first pre-sale of two residential apartment blocks comprising 156 units on 31 December 2022. The sales result as at 10 March 2023 was modest with 39 units sold.
Construction of the 46.6%-owned Cuilong Bay development that was acquired via a public land tender exercise held on 24 June 2022 commenced in August 2022.
Barring any unforeseen circumstances, the predominantly residential project, which comprises twelve residential apartment blocks of 1,240 units, is expected to launch its first pre-sale around 2Q2023.
The 27%-owned Luwan Garden, which was also acquired via a public land tender exercise held on 24 June 2022, is the third JV development project with China Poly. Construction of this predominantly residential development with approximately 380 units has commenced.
Barring any unforeseen circumstances, the first pre-sale is expected to be launched in 3Q2023.
The Brilliance, which is 100%-owned and was acquired via a public land tender exercise held on 30 August 2022, is situated less than 500 metres from the Dongguan Train Station and is adjacent to a future transit-oriented development mixed-use development plot which has not been released for public land tender. The Dongguan Train Station is an existing transportation hub which includes the Guangzhou-Shenzhen Intercity Railway that connects to Guangzhou, Shenzhen and Kowloon, Hong Kong.
Predominantly residential, it comprises seven blocks of approximately 820 units. Construction commenced in December 2022 and the first pre-sale of the units is expected to launch around 2Q2023.
The last of the four Dongguan development land plots acquired in FY2022 is the 50%-owned Shijie Land, which was acquired via public land tender exercise held on 30 August 2022. This is a joint venture project with New Century, an existing JV partner in the redevelopment of the Dongguan East Sun Wentang Recycling Factory.
Construction of the 1,230-unit project, known as Kingsman Residence commenced in December 2022 and barring any unforeseen circumstances, its first pre-sale is expected to be launched in 2H2023.
Pre-sale for the first three residential apartment blocks (177 units) of Primus Bay has been moving at a slow pace since its launch on 26 May 2022 as Guangzhou has not implemented housing policy relaxation similar to that seen in Dongguan.
After taking over the project, the Group further optimised the design of the project and expects to launch the pre-sales for the rest of the residential apartment blocks progressively in the coming months.
Following the successful development of Plot F, the last development plot of the Millennium Waterfront project, Plot E, is expected to launch its first phase of one SOHO block of 1,175 units for pre-sale in the coming months. Barring any unforeseen circumstances, the handover of SOHO units is expected to commence in phases from late 2023 to early 2024.
After obtaining the Stage 2 development approval in November 2021, the 39.9%-owned developer trust made further progress on the CTC project with the signing of a construction agreement with Richard Crookes Constructions as the main contractor on 23 February 2023 with a contract price comprising fixed and variable components.
The CTC project, upon completion, will comprise a refurbished club, a 110-room hotel and 241 residential units. The developer trust will monitor the market conditions before deciding on an appropriate time to launch the residential units for pre-sale. The Group will take a 70.5% stake in the hotel component.
The Group, together with Tai Tak as its JV partner, will be providing construction financing to the developer trust as part of its property financing business.
The redevelopment work on the Group’s project in Dreeftoren Amsterdam Southeast is currently ongoing and is on track for completion around late 2024 and 4Q2025 for the office and residential towers respectively. The redevelopment project comprises a newly refurbished and enlarged 18-storey office tower, a new 130-metre high residential tower with 312 apartment units, and a parking garage with 136 carpark lots.
The construction market continues to pose challenges and risks to the contractors and subcontractors in terms of cost control. The Group has been actively engaging them in order to manage its risk exposure.
Following the acquisition of the five-storey Meerparc located in Amsterdam South-Axis, the central business district of Amsterdam, in December 2017, the Group is currently working on redeveloping the property into a mixed residential and office property with an overall GFA of 50,000 sqm. The residential and office ratio is expected to be approximately 60% and 40% respectively.
Since the execution of the letter of intent on 21 October 2022, the Group has been in discussions with the municipality on the design, program and specifications of the building, including the residential mix of social, mid-rent and free market units.
Management aims to complete the design process and apply for the building permit in 2H2023.
Further expanding its footprint in the Netherlands, on 23 December 2022, the Group completed the acquisition of a dated freehold commercial property located in Amsterdam at an all-in purchase price of €11.5 million.
The property, which comprises four adjacent monumental buildings with a total lettable floor area of approximately 3,000 sq m, is situated opposite the Amsterdam Central public transport hub in the city centre of Amsterdam.
The Group intends to fully renovate the property to enhance its value once the existing lease in respect of the property expires on 31 December 2023.
As corporate and leisure travel continues to recover from the Covid-19 pandemic, the Group’s property holding business segment recorded an EBITDA of €19.6 million, a significant increase from the FY2021 EBITDA of €1.1 million. Profitability of the hotels was however adversely impacted by high energy and labour costs as well as the discontinuation of government subsidies for Covid-19. The Group has commenced a program to mitigate the increases in energy cost via the installation of solar panels in several of its hotels and other energy saving initiatives.
In the PRC, although the Chengdu Wenjiang hotels recorded a stronger EBITDA in 2H2022 as compared to 2H2021, the FY2022 EBITDA was slightly lower than that of FY2021 as the hotels were used as quarantine hotels on several occasions during FY2022.
The Dutch office portfolio’s annual income contribution decreased by approximately 5.6% in local currency terms due mainly to the exit of an anchor tenant, Delta Lloyd, from the Mondriaan Tower in Amsterdam. This vacancy has been partly filled by new tenants and tenant sourcing for the remaining vacant space is ongoing.
The Dutch Bilderberg hotel portfolio continued its strong recovery from the Covid-19 pandemic in both average daily rate and occupancy in FY2022. It is encouraging to note that the 2H2022 revenue per available room is almost the same as 2H2019’s level, which is an indicator that demand is returning to pre Covid-19 level.
With strong recovery in the hospitality industry, the EBITDA for FY2022 increased substantially to €7.8 million (FY2021: €2.1 million) despite significantly lower government subsidies of €1.4 million in FY2022 (FY2021: €6.1 million).
The Hilton Rotterdam Hotel recorded a strong FY2022 performance which was driven by the meeting and event businesses. The hotel recorded occupancy of 66.3% in FY2022 (FY2021: 29.9%), resulting in an EBITDA of €3.1 million as compared to a loss before interest, tax, depreciation and amortisation (“LBITDA”) of €0.6 million in FY2021, despite lower government subsidies in FY2022.
The Hampton by Hilton and Crowne Plaza in Utrecht reported strong FY2022 occupancies of 78.1% (FY2021: 42.7%) and 67.1% respectively. As a result of the strong trading, the hotels jointly reported an EBITDA of €4.0 million (FY2021: €0.1 million).
The Dresden hospitality market continued its recovery in 2022 and the Bilderberg Bellevue Hotel recorded an occupancy level of 56.6% for FY2022, higher than the 36.0% achieved in FY2021.
The hotel recorded an improved EBITDA of €2.7 million for FY2022 (FY2021: €1.0 million). For FY2022, the EBITDA was above the level in FY2019 due to the implementation of the room refurbishment program in FY2019.
Likewise, the Frankfurt hospitality market continued with its recovery in 2022 and the Le Méridien Frankfurt recorded an improved FY2022 occupancy of 51.2% (FY2021: 27.7%).
Arising from the strong occupancy, the hotel achieved an EBITDA of €2.0 million in FY2022 (FY2021: LBITDA of €1.5 million).
The hotel is currently studying the feasibility of various value enhancement options, including market re-positioning and room count increase.
Due to the resurgence of Covid-19 cases in Chengdu, both the Crowne Plaza and Holiday Inn Express hotels were selected by the local municipal authorities for use as quarantine hotels on several occasions for a total of approximately 15 and 19 weeks respectively in FY2022.
Notwithstanding the above, the hotels recorded a higher EBITDA of RMB8.3 million in 2H2022 (2H2021: RMB4.2 million) as 2H2021 was a weaker period with the implementation of restrictions to curb the spread of Covid-19. For FY2022, the hotels recorded a slightly lower EBITDA of RMB11.9 million (FY2021: RMB12.5 million).
In view of the difficult property market conditions in the PRC in FY2022, the Group’s property financing arm took a more prudent approach in managing its PRC loan book. However, with the recovery from Covid-19 on the horizon and the improving economic outlook for the PRC economy, the Group will carefully evaluate the feasibility of increasing its PRC loan book again. In the Netherlands, the Group’s loan book also shrank due to a substantial partial loan repayment by FSMC arising from the sale of its 95% equity interest in the Dutch Bilderberg hotel portfolio to the Group. As such, revenue from the property financing business segment decreased by 38.4% in FY2022 from FY2021.
Exposure to the Group’s RMB280 million defaulted loan diminished over the course of FY2022, with its aggregate outstanding amount being RMB130.4 million as at 31 December 2022. A net impairment charge of RMB82.0 million, which effectively relates to the interest recognised on the loan but not collected, was recognised in FY2022. No impairment charge for the remaining RMB48.4 million out of the RMB130.4 million was necessary as such amount was not previously recognised as interest income although the Group is legally entitled to claim it from the borrower group. The Shanghai court has, on behalf of the Group, placed several legal caveats on the remaining properties of the borrower group. However, there is no assurance that any part of the RMB130.4 million and associated interest thereon will be recovered. Notwithstanding the above, the Group has already achieved an internal rate of return of 13.0% and 1.7% for the RMB50 million and RMB280 million defaulted loans respectively.
The Covid-19 pandemic has underscored the importance of shared responsibility among societies and their duty to one another in times of need. In that spirit, the Group is happy to give back through its Corporate Social Responsibility (“CSR”) activities. This year, the CSR activities were undertaken by Hilton Rotterdam, the Hampton by Hilton and Crowne Plaza Utrecht Centraal Station and Bilderberg Bellevue Dresden. Unfortunately, the Wenjiang hotels were unable to participate in any CSR initiatives and activities due to their use as quarantine hotels in 2022.
With regard to social activities, in 2022, the Hilton Rotterdam team participated in the (i) Ronald McDonald Homerun, a running and cycling marathon to raise funds for the Ronald McDonald Foundation, (ii) Stichting Jarige project, which saw the team helping to prepare birthday packages for children of less privileged families, (iii) Stichting NAS project, which saw the team collecting soap bottles for the homeless, (iv) Salvation Army, where team members voluntarily donated clothes and (v) Stichting niet graag een lege maag, an initiative which saw the team preparing lunch for children of less privileged families. In keeping with the Group’s CSR towards the environment, in 2022, the Hilton Rotterdam team participated in (i) the Clean the World initiative which involved the collection and recycling of used soap bars which were then redistributed to children and families in countries with a high death rate due to acute respiratory infection (pneumonia) and diarrhoeal diseases (cholera) and (ii) the collection of plastic bottle caps which were exchanged for cash at the local supermarket and donated to the KNGF Geleidehonden charity.
The Bilderberg Bellevue Dresden team participated in the Wunschweihnachtsbaum event, which is organised annually together with Kindervereinigung Dresden e.V. to grant Christmas wishes to socially disadvantaged children. Employees and guests of the hotel contributed either a gift or a donation of 20 or 30 euros which were handed to the children personally by the general manager and employees of the hotel. The team also participated in the Obdachlosencafé/Nachtcafé initiative whereby the hotel’s F&B team supported the Dresden church communities by providing warm meals in their outreach program to homeless persons aged 18 and above. With regards to CSR towards the environment, the hotel team donated (i) a part of the entrance fee to its wellness area to the Mein Regenwald Project, which supports the preservation of the Peruvian rain forest and (ii) a part of the savings from room cleaning fees to the children’s association and environmental center Dresden, also known as Kindervereinigung Dresden and Umweltzentrum Dresden e.V. respectively.
New to the Group’s CSR activities are the Hampton by Hilton and Crowne Plaza Utrecht Centraal Station hotel teams. Both hotel teams participated in the social Mag ik dan bij jou program which saw the hotels setting aside rooms to accommodate the overflow of parents whose children were in the hospital, and when the nearby Ronald McDonald house was fully booked. On the environmental side, the hotels also started a program similar to the “Plant a tree” program by Hilton, whereby guests are asked to choose whether to have their rooms cleaned. This helps to create awareness among guests of the importance of saving water and energy. The hotels also collected and sold used toners from copiers and printers to Eeko, an organisation that refills the toners for resale. The proceeds received by the hotels from Eeko were donated to ‘Clinic clowns’, an organisation that, among other things, sends clowns to visit and entertain children in hospitals.
The Group will continue to support programs that bring communities together, have a socially and environmentally positive impact, or build and foster business-to-community relationships.
Despite the proverbial light at the end of the tunnel with regards to the Covid-19 pandemic, the Group recognizes the risks on the horizon stemming from the geopolitical tensions and global inflationary pressures. The Group is committed to maintaining its operational readiness and flexibility, and will remain vigilant and prudent as it navigates through this period of volatility and turbulence.
The Group is backed by a strong balance sheet, substantial potential equity infusion from the exercise of outstanding warrants and unutilised committed credit facilities. The aforementioned, along with the cashflow expected to be generated by the record number of development projects to be launched for pre-sale in FY2023, will bolster the Group’s financial strength such that it will be ready to capitalise on any good business opportunities when they arise.
In spite of the many hurdles that we had to overcome, First Sponsor is here today because of the support from its many stakeholders and, on behalf of the Board, I would like to convey our gratitude for all your diligence and commitment to the Group. To my fellow Directors, thank you for sharing your vision, wisdom, experience and counsel. Last but certainly not least, I would like to express our heartfelt appreciation to our shareholders, customers, business associates, bankers and partners who have been steadfast in their support. We truly value your support and faith in us. Let us once again band together and overcome any obstacles so that we may emerge with greater success in FY2023.
Ho Han Leong Calvin
10 March 2023