Nam Tai Property Inc. Reports Q1 2018 Results

SHENZHEN, April 30, 2018 /PRNewswire/ -- Nam Tai Property Inc. ("Nam Tai" or the "Company") (NYSE Symbol: NTP) today announced its unaudited results for the first quarter ended March 31, 2018.  

KEY HIGHLIGHTS

SUPPLEMENTARY INFORMATION (UNAUDITED) IN THE FIRST QUARTER OF 2018

OPERATING RESULTS

Operating loss for the first quarter of 2018 was $9.1 million, an increase of $7.7 million, compared to operating loss of $1.4 million in the first quarter of 2017, when there was rental income derived from our land and buildings located in Gushu, Shenzhen, prior to the expiration of its lease agreement in October 2017, to offset the operating loss.

Net income for the first quarter of 2018 was $2.6 million compared to a net income of $1.8 million in the first quarter of 2017. Net income for the first quarter of 2018 mainly consisted of a gain of $6.8 million on disposal of an office property in Hong Kong, exchange gain of $3.3 million as a result of the appreciation of Renminbi against the US dollar in the first quarter of 2018, interest income of $1.5 million earned from time deposits; offset in part by general and administrative expenses of $9.1 million that mainly included accrual of compensation for loss of office of $3.7 million for the anticipated retirement of a senior manager and option expenses of $1.4 million for certain new officers and employees, salary & benefits of $1.8 million, depreciation of $1.0 million and audit, legal & professional fees of $0.6 million. Net income for the first quarter of 2017 mainly consisted of interest income of $2.5 million earned from time deposits, exchange gain of $0.8 million as a result of the appreciation of Renminbi against the US dollar in the first quarter of 2017, and net operation income of $0.6 million; offset in part by general and administrative expenses of $2.0 million that mainly included salary & benefit of $1.0 million, option expenses of $0.2 million, and audit, legal & professional fees of $0.2 million. Net income per diluted share for the first quarter of 2018 was $0.07 compared to net income per diluted share of $0.05 for the first quarter of 2017.

As the majority of our assets are denominated in Renminbi, the translation of Renminbi denominated assets to US dollars for reporting purposes has resulted in foreign exchange gain for the three months ended March 31, 2018. Due to the fluctuation of exchange rate for Renminbi against the US dollar, foreign exchange gain for the three months ended March 31, 2018 was $3.3 million, or approximately 126.7% of the amount of our net income for this period. However, since the majority of our payment obligations are also denominated in Renminbi, we do not expect the movement of Renminbi against the US dollar to materially or adversely impact our business. Nevertheless, investors should consider that the purchasing power of US dollar figures for cash and cash equivalents and other short-term investments is not identical from period to period.

Capitalization on project investment was $2.0 million for first quarter of 2018, our accumulated project investment was $56.2 million up to March 31, 2018, which was recorded under the item real estate properties under development in the balance sheet as of March 31, 2018.

Our business of land development is currently in the preparatory stage where it takes time to apply for the relevant licenses and permits from the PRC government. During this preparatory stage of the land development, our only sources of income are from limited deposit interest; therefore, we expect to continue to incur operating losses as long as we are in this stage.

Please see page 7 of the Company's Condensed Consolidated Statements of Comprehensive Income for further details. This information has also been published on the Company's website at http://www.namtai.com/investors#investors/quarterly_earnings in the quarterly earnings report of the first quarter of 2018 on page 7, Condensed Consolidated Statements of Comprehensive Income.

COMPANY OUTLOOK

The development of Nam Tai Inno Park in Guangming, Shenzhen, and Nam Tai Inno City in Gushu, Shenzhen, continues to proceed smoothly.

The construction of Nam Tai Inno Park continued with the excavation of its foundation and settlement of piles during the first quarter of 2018. The Company plans to select two main construction contractors in May of 2018, which, in turn, would allow the Company to receive the Construction Permit for the Main Structure as the next step. In any event, the Company will announce each of these important milestones in due course.

On April 10, 2018, the Company also announced the receipt of RMB1.2 billion ($184 million) credit facility from China Construction Bank to support the development of the Nam Tai Inno Park Project (the "Inno Park Financing Package") beyond the $173.2 million of cash, cash equivalents and short-term investments that the Company had on hand as of March 31, 2018. The Inno Park Financing Package is a part of the Strategic Cooperation Agreement that the Company entered into with China Construction Bank on August 18, 2016, where China Construction Bank planned to offer a total credit facility of up to RMB5.0 billion to the Company over a five years period for various projects, including Nam Tai Inno City as the next project. With the construction financing for Nam Tai Inno Park project secured, the Company will now focus on building Nam Tai Inno Park into a high-tech research & development center.

For Nam Tai Inno City, after splitting the development into Phase I and Phase II to cover the eastern and western sections, respectively, the Company continued with the demolition of its old factory buildings located on the eastern section in the first quarter of 2018. The Company currently focuses its development efforts on redesigning the complex to maximize its value based on the latest market outlook. The Company continues to follow its plan of development and expects to receive the Land Use Permit in June 2018 and Land Use Right Certificate in August 2018 for Phase I of Nam Tai Inno City. For Phase II of Nam Tai Inno City, as the Company now expects to receive its Construction Permit for the Main Structure around July 2020, the Company may look for ways to increase its utilization prior to the start of the construction.

For our Hong Kong office property, we sold it to our Chairman, Mr. Koo, for $9.7 million on February 12, 2018, after our Audit Committee reviewed two valuation reports prepared by two independent appraisers and our Board of Directors approved the transaction price.

As for the Wuxi facilities, the Company continues to search for both potential buyers or renters, with the primary focus on rental.

Following below are summaries of our Nam Tai Inno Park and Nam Tai Inno City projects:

Part I: Gross Floor Areas for the Two Projects:

Part II: Timetable for the Two Projects:

Part III: Budgetary Estimate for the Two Projects:

Potential Risks in Our Business

We currently derive a majority of our income from interest income. Since 2016, we have seen a stabilizing trend on the benchmark interest rates in China. However, due to the current economic conditions in China, we expect the People's Bank of China ("PBOC") to keep Renminbi-denominated official time deposit interest rates in China at a low level throughout 2018. We expect to continue to incur operating losses in the second quarter of 2018 and beyond. With this lower interest rate environment and continued decrease in our level of deposit, we expect our income offset against these operating losses to materially decrease in future periods, which will accelerate the current decline of our cash and cash equivalents and other short-term investments.

We have only become a real estate developer after our electronic manufacturing businesses ceased in 2014. To ensure our successful transformation, we have engaged external advisors and sought potential strategic partners and investors, including Kaisa, to support our projects. We cannot assure you our efforts will be sufficient enough to carry out a transformation of this magnitude. Our Chairman, Mr. Koo, is 74 years old. In accordance with our restructuring plan, Mr. Koo has begun his transition towards retirement in anticipation of age and health issues, including the appointment of Mr. Ying Chi Kwok as our Chief Executive Officer and Ms. Yu Zhang, in his place, as our Chief Financial Officer. We cannot assure you that our restructuring plan can be carried out smoothly, or that any successor will be able to manage our Company as effectively.

As the majority of our assets are denominated in Renminbi, the translation of Renminbi-denominated assets to US dollars for our reporting purposes has resulted in a foreign exchange gain in this quarter. As such, we do expect to see fluctuations in the reporting of foreign exchange loss/gain in the financial statements due to the movement of Renminbi against the US dollar. However, as a majority of our payments are in Renminbi, we also do not expect the movement of Renminbi against the US dollar to adversely impact our business. Nevertheless, investors should consider that the purchasing power of US dollar figures for cash and cash equivalents and other short-term investments is not identical from period to period.

In order for the projects to proceed smoothly, we will need to access additional funding. To do so, the Company will negotiate loans and credit lines with financial banks to source funds needed to assist in future development of the projects. These debt instruments often contain covenants limiting our flexibility in operating our business and can contain requirements that we meet certain milestones in our project development. While we have obtained the Inno Park Financing Package to support our financing in part, there can be no assurance that we can continue to enter into these instruments with financial institutions successfully or that, if we do, we will be able to comply with the covenants or milestones these instruments may require. Failure to enter into these loans or credit lines or to comply with any terms required by this funding may delay our developments as we seek alternative sources of funding or prevent us from completing the developments entirely.

As of March 31, 2018, we have a total cash balance of $173.2 million and no debt. With our current cash position and the receipt of the Inno Park Financing Package after the conclusion of the first quarter, we believe our finances remain sufficient to fund the initial stages of these property development projects for the construction of the main structure of Nam Tai Inno Park as currently planned. All of our land development related applications are subject to government policies and regulations in the real estate market. As this is our first venture into the land development projects, we may encounter industry-specific difficulties that result in losses as we progress with our projects in Shenzhen. As we are currently in the planning stage of our property projects, and can only generate limited interest income from cash deposits, we will continue to record operating losses. Cash on hand is expected to drop continuously, but most of the incurred expenditures related to construction will be for project development, which will be capitalized as real estate properties under development (non-current asset) on our balance sheet. For more information on risks in our business, please refer to the Risk Factors section of our 2017 Annual Report on Form 20-F as filed with the SEC and on our website.

According to our project development plan, project investment for the second quarter of 2018 is estimated to be $37.8 million, and project investment for the year of 2018 is estimated to be $153.5 million.

The information contained in or that can be accessed through the website mentioned in this announcement does not form part of this announcement.

PAYMENT OF QUARTERLY DIVIDENDS FOR 2018
As announced on October 30, 2017, the Company set the payment schedule of quarterly dividends for 2018. The dividend for the first quarter of 2018 was paid on April 20, 2018.

The following table updates the previously announced schedule for declaration and payment of quarterly dividends in 2018.

The Company's decision to continue making dividend payments in 2018 as set out and confirmed in the above table does not necessarily mean that cash dividend payments will continue thereafter or at the same amount. Whether future dividends after 2018 are to be declared will depend upon Company's future growth and earnings at each relevant period, of which there can be no assurance, and the Company's cash flow needs for business operations and transformation. Accordingly, there can be no assurance that cash dividends on the Company's common shares will be declared beyond those declared for 2018, and we also cannot assure you what the amounts of such dividends will be or whether such dividends, once declared for a specific period, will continue for any future period, or at all.

PROPOSED SCHEDULE FOR RELEASE OF QUARTERLY FINANCIAL RESULTS FOR 2018

To maintain the efficiency of delivering the Company's quarterly financial results to the market, the Company's management has decided to follow approximately the same schedule of 2017 to release the quarterly financial results for 2018. Details of the expected quarterly release dates are as follows:

Announcements of Financial Results

FORWARD-LOOKING STATEMENTS AND FACTORS THAT COULD CAUSE OUR SHARE PRICE TO DECLINE

Certain statements included in this press release, other than statements of historical fact, are forward-looking statements. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may", "will", "expect", "intend", "estimate", "anticipate", "plan", "seek", "believe" or "timetable". These forward-looking statements, which are subject to risks, uncertainties, and assumptions, may include projections of our future financial performance based on our growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations about future events. There are important factors that could cause our actual results, level of activity, performance, or achievements to differ materially from the results, level of activities, performance, or achievements expressed or implied by the forward-looking statements, including, but not limited to, delay in the Company's ability to obtain all requisite permits and approvals from relevant government authorities in relation to the redevelopment of two parcels of properties in Guangming, Shenzhen, and Gushu, Shenzhen, respectively, and the successful redevelopment of the two parcels of properties into Nam Tai Inno Park and Nam Tai Inno City; the sufficiency of the Company's cash position and other sources of liquidity to fund its property developments; continued inflation and appreciation of the Renminbi against the US dollar; rising labor costs in China and changes in the labor supply and labor relations. In particular, you should consider the risks outlined under the heading "Risk Factors" in our most recent Annual Report on Form 20-F and in our Current Report filed on Form 6-K from time to time. The Company's decision to continue dividend payments in 2018 does not necessarily mean that dividend payments will continue thereafter. Whether future dividends will be declared depends upon the Company's future growth and earnings, of which there can be no assurance, as well as the Company's cash flow needs for further expansion. Accordingly, there can be no assurance that cash dividends on the Company's common shares will be declared beyond those declared for 2018, what amount those dividends may be or whether such dividends, once declared for a specific period, will continue for any future period, or at all; and whether we will purchase any of our shares in the open markets or otherwise. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance, or achievements. You should not rely upon forward-looking statements as predictions of future events. These forward-looking statements apply only as of the date of this press release; as such, they should not be unduly relied upon as circumstances change. Except as required by law, we are not obligated, and we undertake no obligation, to release publicly any revisions to these forward-looking statements that might reflect events or circumstance occurring after the date of this release or those that might reflect the occurrence of unanticipated events.  

ABOUT NAM TAI PROPERTY INC.

We are a real estate developer. We hold two parcels of land located in Guangming and Gushu, Shenzhen, China. We are converting these two parcels of land that formerly housed the manufacturing facilities of our prior businesses into high-tech research and development centers, Nam Tai Inno Park and Nam Tai Inno City. We expect our principal income in the future will be derived from rental income from these research and development centers. Nam Tai Property Inc. is a corporation registered in the British Virgin Islands and listed on the New York Stock Exchange (Symbol: "NTP").

Please refer to the Nam Tai website (www.namtai.com) or the SEC website (www.sec.gov) for Nam Tai press releases and financial statements.

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