Nam Tai Property Inc. Reports Q4 2018 Results

SHENZHEN, China, Jan. 28, 2019 /PRNewswire/ -- Nam Tai Property Inc. ("Nam Tai", the "Company", "we" and "us") (NYSE Symbol: NTP) today announced its unaudited results for the fourth quarter ended December 31, 2018.

KEY HIGHLIGHTS

(In thousands of US dollars, except per share data, percentages and as otherwise stated)

SUPPLEMENTARY INFORMATION (UNAUDITED) FOR THE FOURTH QUARTER OF 2018

Key Highlights of Financial Position

OPERATING RESULTS

Net operation income for the fourth quarter of 2018 was $0.4 million, an increase of $0.2 million compared to an operation income of $0.2 million in the fourth quarter of 2017. Operation income for the fourth quarter of 2018 mainly consisted of rental income of $0.4 million from the existing factory buildings located on the site of Phase II of Nam Tai Inno City.

Operating loss for the fourth quarter of 2018 was $3.6 million, an increase of $1.4 million compared to an operating loss of $2.2 million in the fourth quarter of 2017. This period to period increase was mainly due to an increase in expenses incurred in connection with our growing operations. Operating loss for the fourth quarter of 2018 mainly consisted of general and administrative expenses of $3.5 million and selling and marketing expenses of $0.5 million, which were offset in part by our net operation income of $0.4 million for the period, compared to general and administrative expenses of $2.4 million in the fourth quarter of 2017, which were offset in part by our net operation income of $0.2 million for that period.

Net loss for the fourth quarter of 2018 was $6.3 million, compared to net loss of $2.5 million in the fourth quarter of 2017. Net loss for the fourth quarter of 2018 mainly consisted of net operating loss of $3.6 million and a loss of $4.1 million related to the disposal of certain fixed assets in our Wuxi factory; offset in part by interest income of $1.0 million earned from time deposits. Net loss for the fourth quarter of 2017 mainly consisted of net operating loss of $2.2 million and a loss of $4.6 million related to the write down of our demolished factory buildings located on the site of Phase I of Nam Tai Inno City; offset in part by an exchange gain of $2.4 million as a result of the appreciation of Renminbi against the U.S. dollar in the fourth quarter of 2017 and interest income of $1.6 million earned from time deposits. Net loss per diluted share for the fourth quarter of 2018 was $0.16 compared to net loss per diluted share of $0.07 for the fourth quarter of 2017.

Net loss for the twelve months ended December 31, 2018 was $13.3 million compared to net income of $3.9 million for the twelve months ended December 31, 2017. Net loss for the twelve months ended December 31, 2018 mainly consisted of general and administrative expenses of $20.4 million, a loss of $4.1 million related to the disposal of certain fixed assets in our Wuxi factory and an exchange loss of $1.3 million as a result of the depreciation of the Renminbi against the U.S. dollar; offset in part by a gain of $6.8 million on disposal of an office property in Hong Kong, interest income of $5.6 million earned from time deposits and operation income of $0.4 million. Net income for the twelve months ended December 31, 2017 mainly consisted of an exchange gain of $8.6 million as a result of the appreciation of Renminbi against the U.S. dollar during the twelve months ended December 31, 2017, interest income of $7.6 million earned from time deposits and operation income of $1.9 million; offset in part by general and administrative expenses of $9.5 million and a loss of $4.6 million related to the write down of our demolished factory buildings located on the site of Phase I of Nam Tai Inno City. Net loss per diluted share for the twelve months ended December 31, 2018 was $0.35 compared to net income per diluted share of $0.11 for the twelve months ended December 31, 2017.

The majority of our assets are denominated in Renminbi. The translation of Renminbi-denominated assets to U.S. dollars for reporting purposes has resulted in a foreign exchange loss, due to fluctuations of the exchange rate for the Renminbi against the U.S. dollar. However, since the majority of our payment obligations are also denominated in Renminbi, we do not expect the movement of U.S. dollar against the Renminbi to materially and adversely impact our business.

Capitalization on project investment was $99.1 million for the fourth quarter of 2018, which mainly consisted of capitalizing payment obligations of $71.2 million in respect to additional land premiums for the land underlying Phase I of Nam Tai Inno City, and was $121.8 million for the twelve months ended December 31, 2018. Our accumulated project investment was $171.6 million as of December 31, 2018, which was recorded under "real estate properties under development" on our balance sheet as of December 31, 2018.

Please see page 7 of the Company's Condensed Consolidated Statements of Comprehensive Income for further details. The information contained herein 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 fourth 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.

For Nam Tai Inno Park, we opened an industrial showroom on the first floor of future building A and held an Internet-of-Things industry conference on December 22, 2018. The showroom was constructed to facilitate discussions with potential tenants and business partners. It includes comprehensive models and a layout of Nam Tai Inno Park, meeting and conference rooms to negotiate the implementation of various technologies and features, a dedicated audio/video room to showcase the technology complex and various units, and a back office area for our staff. The industrial showroom is also designed to attract potential tenants and promote our brand as an operator of high-tech research and development centers. We plan to continuously renovate our industrial showroom by integrating our potential partners' technologies and latest commercial elements for technology parks to further strengthen our position in the market.

For Phase I of Nam Tai Inno City, we re-executed our land use rights contract on October 25, 2018, with the urban planning, land and resources commission of Shenzhen municipality, which allows the 50-years term of our land use rights to restart from the date of re-execution. Upon the receipt of the completion acceptance certificate, we will be permitted to exchange our existing general property ownership certificate for the entire Phase I complex for new 50-year, individual property ownership certificates for each developed unit, thereby allowing us to sell individual units. As a part of re-executing the land use rights contract, we are required to pay, and have capitalized the entire payment of $71.2 million in, additional land premiums for the land underlying Phase I of Nam Tai Inno City, of which $21.4 million was paid on October 27, 2018 and the remainder will be paid by mid 2019. Our payment of additional land premiums may be offset in part by the increased cost basis of our development project when calculating land appreciation tax, if we choose to sell the developed units.

For Phase II of Nam Tai Inno City, we continued with our efforts to lease out offices and workshops to tenants in the technology sphere. As of December 31, 2018, we have successfully rented out the majority of the leasable office and workshop spaces. We decided to lease out our current spaces to early stage companies due to our demolition and construction schedule, which is planned to occur in a few short years, making the existing buildings less attractive to industrial tenants with scaled operations and longer time horizons. Our primary focus is not to generate significant revenue but to maintain the active operation of the facilities ahead of their redevelopment, which is expected to start in March 2023.

As for our Wuxi facility, we have rented it to a third party for further renovation and development commencing from October 2018.

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

The recent trade disputes between the U.S. and China and the imposition of higher tariffs by the U.S. government for the importation of goods manufactured in China have brought upon a level of uncertainty for many companies in Shenzhen concerning the strength of China's economy in the next few years. The design and timing of our projects are based in part on certain projected development in Shenzhen city and its economy. Prolong uncertainty concerning the direction of Shenzhen's economy may negatively affect companies' willingness for large capital expenditure, including relocating to an upgraded environment such as our technology parks. If uncertainty persists, we cannot assure you it would not negatively affect the sale or lease of our property upon completion.

Because our projects are mainly in the initial and development stages, we currently derive a majority of our income from interest income and rental 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 (the "PBOC") to keep Renminbi-denominated official time deposit interest rates in China at a low level throughout 2019. We expect to continue to incur operating losses in the first quarter of 2019 and beyond. With this lower interest rate environment and continued decrease in our level of deposits as we continue to develop our projects, we expect our income offset against operating losses to materially decrease in future periods, which will accelerate our decline of cash and cash equivalents and other short-term investments.

We only became a real estate developer after our electronic manufacturing businesses ceased in 2014. To aid us in our successful transformation to this new business, we have engaged external advisors and sought potential strategic partners and investors, including Kaisa Group Holdings Ltd., to support our projects. Our likelihood of success must be considered in light of challenges, uncertainties, expenses, difficulties, complications and delays frequently encountered in connection with entering a new industry. We cannot assure you that our transition to the real estate development business can be carried out smoothly and our efforts will be sufficient enough to achieve a successful transformation.

As the majority of our assets are denominated in Renminbi, the translation of Renminbi-denominated assets to U.S. dollars for our reporting purposes has resulted in a foreign exchange loss for the twelve months ended December 31, 2018 in the amount of $1.3 million. As such, we expect to see fluctuations in the reporting of foreign exchange loss/gain in our financial statements due to the movement of the U.S. dollar against the Renminbi. However, as a majority of our payments is in Renminbi, we also do not expect the movement of the U.S. dollar against Renminbi to adversely impact our business. Nevertheless, investors should consider that the purchasing power of U.S. dollar figures for cash and cash equivalents and other short-term investments is not identical from period to period.

In order for our projects to proceed smoothly and the transformation of our business to succeed, we will need to access additional funding. To do so, we will negotiate loans and credit lines with banks to source funds needed to assist in the future development of our projects. These loan agreements and debt instruments often contain covenants limiting our flexibility in operating our business and can contain requirements that we meet certain milestones in our projects' developments. While we have obtained a credit facility from China Construction Bank to support our financing of Nam Tai Inno Park, we will need to obtain additional funding. Changes in the macroeconomic environment or government policies in China could restrict China Construction Bank's or any other state-owned Chinese bank's funding ability, or that we may not be able to continue to enter into agreements and instruments with other financial institutions successfully. Furthermore, failure to comply with any terms required by the funding agreements or instruments may delay our developments as we seek alternative sources of funding or prevent us from completing the developments.

According to our project development plan, project investment for the first quarter of 2019 is estimated to be $24.7 million, and project investment for the year of 2019 is estimated to be $167.0 million.

As of December 31, 2018, we had a total cash balance of $109.9 million. We have a credit line of $184 million from China Construction Bank for the Nam Tai Inno Park project, which has yet to be drawn down. As we plan to begin the development of Phase I of Nam Tai Inno City, we plan to seek addition borrowing facilities or alternative funding sources in 2019.

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

SCHEDULE FOR RELEASE OF QUARTERLY FINANCIAL RESULTS FOR 2019

To maintain the efficiency of delivering the Company's quarterly financial results to the market, the Company's management expects to release the quarterly financial results in accordance with the following schedule for 2019. 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 announcement, 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", "might", "can", "could", "will", "would", "anticipate", "believe", "continue", "estimate", "expect", "forecast", "intend", "plan", "seek", 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 and the industry in which we operate. 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 our 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 our cash position and other sources of liquidity to fund our property developments; continued inflation and appreciation of the Renminbi against the U.S. dollar; and 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 Reports filed on Form 6-K from time to time. Whether dividends will be declared in the future depends upon our future growth and earnings, of which there can be no assurance, as well as our cash flow needs for further expansion. Accordingly, there can be no assurance that cash dividends on our common shares will be declared beyond those declared in 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, levels 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 announcement; 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 announcement 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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