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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good evening. Welcome to the conference and webcast on our results and performance in the third quarter and 9 months of 2018.
This has been an eventful quarter for Keppel as we launched several initiatives to grow our business as a provider of solutions for sustainable urbanization. This includes our entry into senior living; expanding our assets under management into education-related real estate and the retail sector in Australia; extending our China property footprint into Nanjing, among others.
Last month, we also announced our preconditional voluntary general offer together with SPH, to gain majority control of M1. We also announced a scheme of arrangement to privatize Keppel T&T to further simplify our corporate structure, allow more efficient capital allocation and better align Keppel T&T's interests with the rest of the groups.
These are long-term initiatives, which would further expand and grow the group's earnings and position us for long-term growth.
For the first 9 months of 2018, we achieved a net profit of $809 million, 18% higher compared to the same period in 2017, underpinned by strong contributions from the Property and Infrastructure divisions, which more than offset losses incurred by the O&M and Investments divisions.
EVA was $384 million. On an annualized basis, our ROE was 9.3%. We achieved a free cash inflow of $828 million in the first 9 months of 2018. Our net gearing was 0.41 at end September 2018, only slightly higher than the 0.40 at end June 2018.
This was despite having paid out $272 million in interim and special dividends in August and the one-off payment of $251 million in fines to the Brazilian authorities as part of the global resolution reached by Keppel O&M last year.
Despite the challenging operating environment, our O&M Division registered a net profit of $2 million in 3Q 2018, bucking 3 consecutive quarters of losses. However, the division continued to suffer a net loss of $38 million for 9 months 2018, mainly due to lower work volume in our share of associated companies' losses.
At the operating level, the O&M Division achieved a profit of $20 million for 9 months 2018 on the back of our rightsizing efforts and reduced overheads. In the first 9 months of 2018, Keppel O&M recognized revenues amounting to $1.4 billion. The division is also working hard to replenish its order book and has secured additional contracts totaling $1.4 billion in the year-to-date, more than the $1.2 billion of new orders secured in the whole of 2017.
This include contracts for 2 new build LNG carriers and the conversion of a LNG carrier to a floating storage and re-gasification unit.
As at 30th September 2018, Keppel O&M's net order book was $4.4 billion compared to $3.9 billion at end December 2017, excluding the projects for Sete Brazil.
Expanding its involvement in the LNG space, Keppel O&M has signed a Technical Assistance and License Agreement with GTT to jointly market LNG solutions, leveraging GTT's membrane containment systems and Keppel's expertise in specialized shipbuilding and LNG solutions.
Keppel O&M has also delivered its second dual-fuel LNG tug, this time to Maju Maritime, with a perfect safety record.
We are seeing more inquiries for scrubber retrofits, which we anticipate will increase as the IMO's 2020 deadline for the implementation of the 0.5% sulfur cap on marine fuels approaches.
Keppel Shipyard completed Singapore's first VLCC scrubber retrofit in 3Q 2018, and we have more projects in the pipeline.
Our Property business performed well, achieving a net profit of $764 million for 9 months 2018, which is an increase of 110% year-on-year, due mainly to the en bloc sales of development projects, the gain from divestment of our stake in the commercial project in Beijing as well as fair value gain on Nassim Woods.
Keppel continues to strengthen our collaboration with strategic partners to capture growth opportunities in the region.
In China, Keppel Land China formed a joint venture with leading Chinese developer, Gemdale Corporation, to develop a residential project in Nanjing.
The collaboration marks Keppel Land's further expansion in the Yangtze River Delta as well as its first foray into Nanjing, a promising market, which continues to see strong demand for premium housing.
Phase 1 of the project is expected to be launched for sale in the fourth quarter this year.
In Vietnam, Keppel Land would become the second-largest shareholder of Nam Long, a leading affordable housing developer in Ho Chi Minh City, with an increased stake of approximately 10% following the conversion of bonds issued by Nam Long.
In Bangalore, India, Keppel Land has deepened its collaboration with reputable Indian property developer, Puravankara, by forming a joint venture to acquire a prime 3-hectare site for commercial development. The site is located next to a mass rapid transit station and a mixed-use precinct, comprising the World Trade Centre, a well-established location that has attracted many MNCs and technology firms.
In the first 9 months, our Property division sold about 3,180 homes, achieving a total sales value of about $1.4 billion. This includes 1,830 homes in China, 200 in Vietnam, 230 in Indonesia, 740 in India and 150 in Singapore.
These figures do not include the 11,000 units, which were sold en bloc when we sold our projects in Zhongshan and Shenyang.
We expect to recognize profits from the sale of some 7,240 units of oversee homes worth about $2.4 billion to be recognized upon completion from 4Q 2018 through 2022.
In our residential land bank, we have about 50,000 homes, of which about 15,000 are ready for launch from now until end 2020. Under our commercial portfolio, we now have about 1.5 million square meters of GFA, of which about 2/3 are under development.
Our Infrastructure division achieved a net profit of $121 million, up 25% year-on-year due to steady contribution from Environmental Infrastructure and Infrastructure services. The construction of Keppel Marina East desalination plant has been progressing well, with over 50% completed. The plan is on target to achieve commercial operation in early 2020.
Earlier today, Keppel Seghers secured a contract to supply technology solutions worth over EUR 70 million to Australia's first WTE plant, which is located in Kwinana.
The facility will feature Keppel Seghers' air-cooled grate and vertical boiler, which are designed to achieve efficient energy recovery and operational reliability.
As announced by Singapore's Energy Market Authority, the nationwide launch of open electricity market will be rolled out progressively in 4 zones from November 2018 to May 2019.
With 17 years of experience in the Singapore electricity retailer market, Keppel Electric is well-positioned to offer innovative and competitive electricity plans to consumers. We are also entering new markets for our data center business.
Keppel, through Alpha Data Centre Fund and Keppel Data Centres, has signed conditional agreements with the Salim Group to jointly develop and operate a high availability data center in Bogor, about 35 kilometers from Jakarta.
Our Investments division registered a net loss of $38 million in the first 9 months of 2018 due to our share of losses from associated companies.
Keppel Capital continued to contribute steadily to the group, although earnings from our asset management division were slightly lower due to higher expenses for growth initiatives and lower one-off performance fees.
In the Tianjin Eco-City, 2 residential land plots were sold by our joint venture, SSTEC, in 3Q 2018. Due to the Tianjin government's property market cooling measures, home prices have moderated and the 2 plots achieved per square meter GFA prices of about RMB 10,500 and RMB 6,700, respectively. However, land is sold by SSTEC based on total land area and the recent land prices of RMB 105 million per hectare and RMB 166 million per hectare are comparable to those of land plots sold in the past 2 years. Profit from the sale of 1 plot has been recognized, while the other will be recognized later this year.
It has been an active quarter for Keppel Capital as our teams work hard at expanding into new markets and asset classes under management, harnessing the capabilities of the Keppel Group.
We have entered into a conditional equity purchase agreement to acquire a 50% stake in leading U.S. senior living operator, Watermark Retirement Communities as well as 50% of the minority interest held by the owners of Watermark in some retirement communities managed by Watermark.
With an AUM of USD 2.7 billion, Watermark is ranked among the top 15 largest senior living operators in the country. This is a strategic move by Keppel to expand into this new growth sector, leveraging Watermark's deep expertise and agile business model.
Keppel Capital is also looking to expand into education real estate assets and has signed a nonbinding MOU with MindChamps to establish a new private fund with an initial target fund size of $200 million.
With Keppel Capital and MindChamps as sponsors, the proposed fund will seek to invest in preschool and early learning real estate assets in the Asia Pacific region. These real estate assets will then be leased to MindChamps or its related entities under long-term leases.
In Australia, Keppel Capital has entered into an MOU with Vicinity Centres, a leading Australian retail property group, to establish a new private fund. The proposed fund intends to invest in an initial portfolio of up to AUD 1 billion of Australian retail properties currently owned by Vicinity Centres, who has a fully integrated asset management platform and AUD 26 billion in retail assets under management.
Our list of REITs have also been expanding their portfolios. In Australia, Keppel DC REIT is enlarging its data center footprint with a new shell and core data center, which will be built in the Macquarie Business Park precinct in Sydney.
Over in the U.S., Keppel KBS U.S. REIT is capitalizing on strong leasing demand from the technology and professional services sectors in Seattle, with the proposed maiden acquisition of the Westpark portfolio business campus, comprising 21 freehold buildings.
All these different initiatives will continue to grow -- contribute to growing our AUM and building up Keppel Capital to be a steady pillar of recurring income for the group.
I would now like to take some time to outline Keppel's rationale for making the preconditional voluntary general offer for M1 together with SPH last month. We see having majority control as being important to allow Keppel and SPH to better support M1's management to transform the business against the backdrop of increasing competition.
M1 will complement the Keppel group's mission as a solutions provider for sustainable urbanization, which includes connectivity and can serve as a consumer digital platform for the Keppel Group and complement our solutions for smart cities.
Keppel has traditionally been involved more in the B2B space. However, we are increasingly transforming our B2B business to include retail customers in gas, electricity and urban logistics. Incorporating M1's capabilities and 2 million recurring subscribers in a combined digital platform will provide opportunities for synergies and cross-selling of services.
The transaction is earnings accretive, net of financing costs, and will expand Keppel's earnings streams and base of recurring income.
To realize the potential of M1, we will work with its management to drive transformation. This would include initiatives, such as digital transformation to enhance M1's offering by becoming a truly digital operator. Over time, M1 can introduce new services leveraging this digital platform.
We will seek more effective cost management of both front and back-end operations and at the same time, pursue growth opportunities. We can also explore balance sheet optimization initiatives with M1 to unlock value from its underlying infrastructure. For example, by restructuring the infrastructure assets.
We see this as an enabler to encourage sharing of infrastructure assets with other operators, which can also result in further cost reduction.
At a broader level, there are synergies to be harnessed between M1 and the Keppel Group. Keppel can leverage M1's digital platform for services provided by Keppel's businesses.
SPH has also spoken of opportunities to leverage M1's mobile platform to offer on-demand and ready digital content to better serve SPH customers, so there would be also opportunities for collaboration and synergy with the SPH group.
M1 is not a new business for Keppel. Keppel was one of the founding shareholders in 1994, before its telephone service was launched in 1997 and the IPO in 2002. We have worked with and supported M1 for over 20 years and it has yielded very good returns.
Keppel has invested $170 million over the years and in return received $737 million of dividends and proceeds from the sale of some shares.
In addition, Keppel's present 19.33% stake held through Keppel T&T, had a market value of $291 million as at 21st September 2018, before we announced our offer.
In short, M1 has been a good investment for Keppel. We believe that with the necessary transformation, it can continue to be a valuable asset for the group. But we have no illusion that the transformation journey will be quick or easy. It will take at least a few years. In the meantime, subject to the approval of IMDA, we are offering a compelling premium to minority shareholders of M1 who are not prepared to wait and bear the related risk to realize the investment in M1 upfront.
To conclude, we are moving ahead with strategic strides with an eye on the long-term future of the company. Earlier generations of Keppelites sowed many of the seeds that are driving Keppel's growth today. Similarly, we are now building and broadening the foundations that will shape Keppel's future growth trajectory as we harness the synergies of being a multi-business group and provide solutions to meet the needs of sustainable urbanization.
I'll now invite our CFO, Hon Chew, to take you through the group's financial performance. Thank you.
Thank you, Chin Hua, and a very good evening to all. I shall now take you through the group's financial performance.
In the third quarter of 2018, the group recorded a net profit of $226 million, which was 15% lower than the same quarter last year. Correspondingly, earnings per share decreased to $0.124 while EVA was higher at $109 million.
Next, the summary group profit and loss statement. The group's revenue for the third quarter was 20% or $322 million lower than the same period last year. Lower revenues from the Property and Investments divisions were partially offset by higher revenues from the Offshore & Marine and Infrastructure divisions.
Operating profit for the quarter decreased by 9% or $26 million to $271 million. This was attributed to lower profits from the Investment division, partially offset by higher profits from all the other divisions.
Profit before tax at $323 million decreased by a lower margin of 2%, mainly due to net interest income as compared to the net interest expense recorded in that same period a year ago.
After tax and noncontrolling interest, net profit was 15% lower at $226 million, translating to earnings per share of $0.124.
In the next slide, we take a closer look at the group's revenues by division. In the third quarter of 2018, the group earned total revenues of about $1.3 billion, 20% lower than the same quarter last year.
The Offshore & Marine division reported a 9% increase in its top line as a result of higher revenue recognition from ongoing projects.
Revenue from the Property division saw a 67% decline due to the absence of revenue compared to the same quarter last year from Estella Heights in Ho Chi Minh City, which obtained occupation permit last year, and The Glades, which were all sold by December 2017 as well as lower revenue from Park Avenue Heights in Chengdu and Highline Residences.
These were partially offset by higher revenue from Waterfront Residences in Wuxi.
The Infrastructure Division achieved an 8% growth in revenues as a result of increased sales in the power and gas business, partly offset by lower progressive revenue recognition from Keppel Marina East Desalination Plant project.
The Investments division decrease in revenue was due mainly to the absence of sale of equity investments compared to the same period last year as well as lower revenue from the asset management business.
Moving on to the group's pretax profit. The group recorded $323 million of pretax profit for the third quarter of 2018, 2% lower than last year. The Offshore & Marine divisions pretax profit was $10 million as compared to a pretax loss of $0.4 million in the same quarter last year. This was due mainly to higher operating profits and net interest income, partially offset by share of associated companies' losses.
The Property division registered a 4% increase in pretax profit arising from the divestment gain of Beijing Aether, partly offset by lower contribution from the Property trading segment, the absence of gain from en bloc sale of Waterfront Residences in Nantong and absence of gain on divestment of Sedona Mandalay compared to last year.
The Infrastructure division reported a 30% increase in pretax profit, driven by the gain arising from the sale of a stake in Keppel DC REIT and high contribution from Infrastructure Services, partly offset by lower contribution from Energy and Environmental Infrastructure.
The Investments division recorded a decrease of $40 million in pretax profit due mainly to the absence of sale-of-equity investments and absence of contribution from k1 Ventures. After-tax and noncontrolling interest, the group net profit decreased by 15% or $39 million, with the Property division being the top contributor to the group's earnings followed by Infrastructure, Investments and Offshore & Marine.
I shall now take you through the performance for the first 9 months of 2018. Compared to the same period last year, net profit for the first 9 months was 18% higher at $809 million. Consequently, earnings per share increased by the same extent to $0.446.
Annualized ROE also increased to 9.3%, while EVA was higher at $384 million.
Free cash inflow for the period was an inflow of $828 million as compared to an inflow of $1 billion in the first 9 months of the year. This was due mainly to the payment of fines to the United States, Singapore and Brazil authorities amounting to $464 million arising from the Offshore & Marine's global resolution. Excluding this one-off payment, the free cash inflow would have been higher than last year.
The group's net gearing improved from 0.46x at the end of 2017 to 0.41x at end of September 2018.
Next, a summary group profit and loss statement for the 9 months. The group earned a total revenue of $4.3 billion in the first 9 months of 2018, a decrease of 3% or $131 million compared to the same period last year.
Lower revenues from the Property and Investment divisions were partially offset by higher revenues from the Offshore & Marine and Infrastructure divisions. Operating profit at $996 million was 58% or $366 million higher than the corresponding period last year boosted by en bloc sales of development projects in China and Vietnam.
Profit before tax, however, increased by a lower margin of 24% due mainly to lower share of profits from associates. In the first 9 months of the year, the group benefited -- sorry -- in the first 9 months of last year, the group benefited from the Tianjin Eco-City sale of 3 land parcels as compared to 1 parcel recognized to date this year.
In addition, Offshore & Marine division also saw lower contribution from associates this year. After tax and noncontrolling interest, net profit was 18% higher at $809 million.
Similarly, earnings per share increased by 18% to $0.446.
In the next slide, we take a closer look at the group's revenues by division. For the first time 9 months of 2018, the group earned total revenues of about $4.3 billion, 3% lower than last year.
The Offshore & Marine division recorded an increase in revenues of 3% due mainly to revenue recognition in relation to the jackup rigs sold to Borr Drilling Limited, partially offset by lower volume of work.
Property revenues dropped by 28%, due mainly to lower revenue from Property trading segment. Infrastructure revenues increased by 17%, led by increased sales in the power and gas business, partly offset by lower progressive revenue recognition from the Keppel Marina East Desalination Plant project.
Investments revenues decreased by $62 million, mainly due to absence of sale of equity investments and lower contribution from the asset management business.
Moving onto the group's pretax profit. The group recorded a pretax profit of $1 billion for the first 9 months of 2018, 24% higher than the same period last year. This was despite the Offshore & Marine division registering pretax losses of $16 million as compared to pretax profits of $13 million last year, arising from lower operating profits and lower contribution from associated companies.
The Offshore & Marine division's pretax profit last year also benefited from a $13 million gain on divestment of Keppel Verolme. The division's operating margin for the first 9 months was 1.8% compared to 2.7% in the same period last year.
In the Property Division, pretax profits more than doubled to $931 million, due mainly to en bloc sales of development projects in China and Vietnam, namely Zhongshan, The Seasons in Shenyang, Hunnan in Shenyang and Quoc Loc Phat in Ho Chi Minh City as well as gains from divestment of Beijing Aether and fair value gain on Nassim Woods.
The increase was partially offset by lower contribution from associated companies and property trading projects. In the prior period, the Property division's pretax profit also benefited from en bloc sale of Waterfront Residences in Nantong and the divestment gain on Sedona Mandalay.
Pretax profit for Infrastructure division increased by 14% to $134 million. This was due mainly to the dilution gain following the change of interest in Keppel DC REIT, again arising from the sale of units in Keppel DC REIT and higher contribution from Environmental Infrastructure and Infrastructure Services.
The increase was partly offset by the absence of gains from divestment of GE Keppel Energy Services and lower contribution from energy infrastructure. The Investments division registered pretax losses of $15 million as compared to a pretax profit of $245 million last year.
This was a result of lower contribution from associated companies, mainly due to the sales recognition of 1 land parcel in Tianjin Eco-City this year as compared to 3 land parcels last year.
In addition, the division's profits last year also benefited from the write-back of provision from impairment of investments and sale of equity investments.
After tax and noncontrolling interests, the group's earnings increased by 18% to $809 million with the Property division being the top contributor to the group's earnings followed by Infrastructure.
The group's net profit of $809 million for the first 9 months of 2018 translated to an earnings per share of $0.446.
Cash flow from operations was $459 million in the first 9 months of the year, up from $451 million in the same period last year.
After accounting for working capital changes, interest and tax, net cash inflow from operating activities was $164 million as compared to an inflow of $811 million last year, due mainly to the higher working capital requirements in the Property division.
Net cash generated from investing activities amounted to $664 million comprising divestment proceeds and dividend income from associated companies totaling $969 million, partly offset by net repayment of the advances from associated companies of $179 million.
As a result, there was an overall cash inflow of $828 million for the first 9 months of 2018 as compared to an inflow of $1 billion last year.
With that, we have come to the end of the results segment and I shall hand the time back to our CEO, Chin Hua, for Q&A.
Thank you, Hon Chew. Now we're ready to take questions on the net. Okay. First question is from [ John Lim ], a retail and shareholder in Singapore. His question: China's property market has not been doing very well after the government's cooling measure. Why is Keppel buying land in Nanjing? How is the market in Nanjing?
Good question. I think it's difficult to classify the Chinese market as one singular market. The cooling measures is having an impact on sales but the impact differs from cities to -- from city to city. The target markets that Keppel Land China has focused on generally has exhibited very strong supply/demand fundamentals and one of these markets is Nanjing. The supply situation there is relatively tight. There is less than 2 years' supply for the residential market. There are some caps that are imposed by the local authorities on selling prices. We have penciled our numbers based on those caps. Of course, the caps limit the upside that you have. But in a sense, because the caps are below the current market values being achieved in the secondary market, it also means that sales, we would expect to proceed quite well in the fourth quarter when the first phase is launched. Judging from other developments that have launched in recent times in Nanjing, we expect the sales to perform quite well. Okay.
Next question is from Cheryl Lee of UBS Singapore. Hello, this is from Cheryl, within the Infrastructure division, net profits from REIT and trusts were high in third Q. What was driving this? Thank you.
I think this one is for Hon Chew?
Yes, sir. Thanks very much. This is due to the divestment of a stake in Keppel DC REIT during the third quarter, which gave us a profit that -- which is why it boosted the profit for the third quarter.
Okay. There's a follow-up question from Cheryl Lee. Good evening. She has 2 questions. On Tianjin Eco-City, what was the value of the profit recognized on the sale? Hon Chew?
Well, we do not actually disclose the profit by plot, but suffice to say that, that has helped to boost the share of profit from Tianjin Eco-City during the quarter, but we don't disclose by plot.
I think, as I have touched on in my opening remarks, the sale price on a per square meter basis of GFA is lower, but these are plots that have higher plot ratios. So on a per square meter of land, it's actually comparable to what was achieved in the recent 2 years. We are -- we're starting to see interests in sites coming back, of course not to the same extent as 2 years ago. We see Tianjin Eco-City as a steady contributor to the group over the years -- the many years to come.
Right. Just to add there. We have now started to show a bit more information on the land sales by Tianjin Eco-City. That's actually on Slide 60, which shows the land plots that were sold since inception. What are the plot ratio, what's the GFA and what were the prices per square foot. Yes.
Thank you. Cheryl had a second question. For the property investment segment, what would be the profit for the [ QB ] if we excluded divestment gains, such as the gains from the Beijing commercial project? There's only one divestment gain for the third quarter from the Property division and Beijing it contributed $122 million. So you can work out the sums, Cheryl. Okay, this is a question from Mr. Lim -- Ms. Lim SK of CIMB Singapore. Hi there. How much was the profit recognized for the 1 plot land sale in Tianjin Eco-City third quarter 2018? I think that has been answered or we could -- however way we can answer it from Hon Chew.
Second question, the quarter-on-quarter rise in operating profit in Infrastructure to $43 million, any one-off and how much? Hon Chew?
For the Infrastructure Division, we also had the gain from the sale of units in Keppel DC REIT, which amounted to about $20 million, so that's the only one-off in third quarter.
Third question from Siew Khee was on, are there any delays in property project construction in China? Thus far, our projects are on track. Of course, we are watching this closely. Okay, this next question is from [ Jean ] of -- an investor from Singapore. In a September 2018 article by Upstream Online, it was stated Golar LNG is evaluating alternative shipyards by those based in China to build future FLNG vessels. Will this result in Keppel O&M facing more intense competition in this space? Can I invite Chris Ong to answer that?
There will always be competition from various shipyard in terms of the provision of solution. But what we try to differentiate ourselves would be our proven solution like Hilli, which is a cost efficient and a quick market and also leverage on Keppel's track record of on-time, on-budget delivery to service all our customers.
Okay. Next question is from Foo Zhiwei from UOB Kay Hian, Singapore. Zhiwei has 2 questions. First question, could you provide a breakdown of the post-tax gains from sale of Aether, change in interests of DC REIT and Keppel REIT and other divestments? Maybe, Hon Chew, you can take that.
Yes. For the divestment of Beijing Aether, I think it was mentioned earlier, the after-tax gain is $122 million. And then for the change in interest of the REITs, we mentioned earlier, I think there are a few components. That's a dilution gain in the second quarter arising from a private placement by Keppel DC REIT that was about -- close to about -- around $20 million. And then I mentioned earlier, there was also the sale of a stake in DC REIT, which also give us a gain, that's also close to $20 million. And the last part is a $20 million gain arising from the change in accounting in some of this -- the units in Keppel REIT from mark-to-market to equity accounting, which gave us a gain of about $20 million as well. So you will see under SGXNet, a total gain of $60 million arising from a change in interest in DC REIT and Keppel REIT.
Thank you. Zhiwei has a second question. That question is: why was Saigon Sports City's launch pushed back into 2019?
We are constantly evaluating the market to see when would be a good time to launch projects. The Vietnamese residential market, particularly Ho Chi Minh City, is still very constructive. First half, we did not launch many new projects, but in the second half of this year, we would expect to see a few launches. So it's really a bit of a question of timing these launches. So we do expect to see, at the present time, the first phase of Saigon Sports City to be launched in the first half of 2019.
This is from Gerald Wong. Next question from Gerald Wong of Crédit Suisse in Singapore. Congrats on bringing O&M back to profit. Gerald has 2 questions. First question, were there any one-off that boosted O&M this quarter? And can O&M stay above breakeven sustainably?
Maybe, Hon Chew, you want to take that?
Yes. Okay. Well, for the third quarter, I think O&M actually did turn in a profit. That's also mainly because the operating profit has gone up for 3Q, but that was also helped by an increase in interest income that was earned during the quarter. Some of that is one-off because some of the interest was not recognized in the past because the collection was unclear until now because we have some shareholder loans from 2 customers, which we have actually collected some of the interest income during the quarter, so resulting in an increase in the interest income. Some of that is one-off because there was some catch-up recognition during the quarter. But that said, I think Offshore & Marine, over the past 2 years, have done a lot of the rightsizing, which has also resulted in a reduction in the overheads, which helped to improve the operating profit.
I think, to add, we are very pleased that we have this quarter of breakeven. The team is working very hard to make sure that this breakeven is sustainable. I think as Hon Chew said, the hard work in reducing our fixed overhead is paying off. We are starting to see more inquiries, so I think we're cautiously optimistic.
The second question that Gerald has is on Tianjin Eco-City. His question is, for Tianjin Eco-City, the land sale prices on a GFA basis were lower than last year. Could Keppel have waited for a market recovery to achieve better prices?
That's an interesting observation and question, Gerald. I think for Tianjin Eco-City, this is a very major G2G project. It will take -- we have been doing this now for 10 years. We've been profitable in the last 2 years. We expect that it will still take us a number of years to get Tianjin Eco-City fully developed. So during this period, there will be cycles that the market will go through whilst we will, obviously, work with our partners to try to optimize the profit that we can achieve from our development of Tianjin Eco-City. We must not lose site of the fact that, at the end of the day, it's really about having that momentum and that momentum to bring in vibrancy and residents into Tianjin Eco-City is just as important as trying to time the market cycle in terms of land sales. Okay, okay.
This is a question, I think it's follow-up question from [ Jean ], the investor from Singapore. I note that since July 2018, Keppel O&M had only won 2 projects of approximately $100 million each. Is Keppel aiming to bid for any larger projects USD 500 million example on the horizon? Perhaps I can ask Chris Ong to address this.
I think the strength of Keppel O&M has always been the ability to stay in the competition, be able to provide solution for the customers. So for the $100 million win -- project win it is sometimes down to timing. And whether are we aiming to bid for any larger projects, we are always in competition for the projects that are available in the market, and we always compete to our strength. So as CEO has mentioned, there are more inquiries, but we are cautiously optimistic. But we also face greater competition. So on the horizon, we are always out in the market to provide efficient -- cost-efficient solution to the customers.
I think we've always also exerted a lot of discipline. I think it's also very important at this point in time, when the market is recovering, that we have to continue to be disciplined in what we bid for. As Chris said, competition is still quite intense, so our goal is always to bid in a way that would allow us to make a reasonable margin on the projects that we do take on.
Okay, next question. This question is from Tan -- sorry, [ Day Pick Gik ] of Singapore Press Holdings. Ms. [ Day ] has 2 questions. First question, I think they are related. The first question is how would the latest guidelines on limiting the number of units allowed in a project affect Keppel's Property's business given that the segment saw an increase of 110%?
These guidelines have just been announced, so obviously, like all developers, we will take a look and see what -- and factor that into when we look at land sites in Singapore. I think for Keppel, you will see that we have -- and I've said this before, we are very fortunate that Singapore market remains very important to us. But for the past 20 years, we have also ventured outside Singapore and we have developed very good Property businesses in places like China, Vietnam, Indonesia, et cetera. So we are not entirely dependent on the market here in Singapore. Although having said that, we still hope to see that -- and we like to think that Singapore market will continue to be -- offer good opportunities for us, and we will take a look at that.
Second question relates to our residential land bank of 50,000 homes. How many of this is -- or how many of these are in Singapore? The remaining units that we have in Singapore is 1,168 units, so you can see that most of the units are actually located outside Singapore. Okay.
Okay, this is a follow-up question from Siew Khee of CIMB Singapore. She has 2 questions. First question, should we be expecting a more positive trend in property in 4Q 2018? The profits for the last 2 quarters have been lackluster.
Wow, she's demanding. I think the -- we had a very good first quarter, but I think overall if you look at the 9 months, we were up 110%, so I think as -- of course, it's helped by some divestments as well as en bloc sales, but I think we've done quite well on the Property side. We are still seeing good markets in Vietnam. Singapore, we're a bit more cautious, but we'll see the latest measures to see what the impact is going to be. But like I said before, we are not fully -- we are quite diversified in terms of Property earnings.
The second question, O&M turnaround in the profits, any one-off? Is this a sustainable trend? I think this question has already been addressed.
Yes.
Okay. This is a question from Conrad Werner of Macquarie Singapore. He has 2 questions. The first question is on asset management. Can you please provide more detail around the lower fees in asset management and will they recover? May I ask Christina to address this.
Sure. I think our CFO have already explained that lower fees was actually really due to the high expenses for growth initiatives. And the other part -- I mean our asset management fee did not change at all actually. And the other one was due to the one-off performance fees compared to last year, this year was a bit lower.
Okay. The second part of his question is on, when do you expect underlying property trading profitability to improve?
I think by that you probably mean the -- because we have done a number of en bloc sales, so if you include that, actually we've -- as I said, to the earlier question, we've done quite well. For the property sales, we have about $2.4 billion in our books. We can't -- we won't be able to recognize this until they are completed. So it really depends on some of the complete -- and so we expect to see some completions in the second half of this year. So it will also depend not just on the sales but when we complete for those projects that are located outside Singapore, where we account for it on a completion method. And of course, I think for the second half -- or for the first half of this year, we had fewer new launches in markets like Vietnam and China compared to last year. For the second half of this year, we are seeing or we're -- we believe that we are in the process of launching some new projects. So that would improve the sales we hope -- or we believe. But at the end, as I said, the recognition will only take place when these projects are completed.
Question from Donald Chua of Bank of America Merrill Lynch. First question, Singapore residential market, any plans to still go ahead with the launch of Nassim Woods?
Answer is, yes, we are going ahead.
Second question on Keppel Bay in the near future, post property caps, any potential delays?
For Keppel Towers, we are we relooking at the plans that we had. We still believe that this would be a good project. We are now tweaking the use that we would incorporate into the new development. So that may lead to a bit of delays but Nassim Woods is proceeding.
Second question: on -- this is regarding the MOU of Vicinity. Any updates on this venture? Can you share the fee structure? Why is Keppel going into retail malls in Australia? Can I ask Christina to address it?
Sure. On Vicinity, I think like -- I think most people would say that retail malls are actually unloved at this point in time, but I think that's where we find great opportunities because in terms of being able to select some of the most defensive malls in this market and getting in at a quite attractive yield, is something that -- which we like. And I think what we like about this sector right now, and we are looking at more the subregional malls within this portfolio and these have been very stable assets and occupancy in the 95% and above in the last more than 5 to 7 years, and it's really based on nondiscretionary spending by the consumers. So we like this sector for its stability in terms of the cash flows that it will generate. So even though it's much an unloved sector, because with less competition actually, we are getting a better deal, and we're also finding that there is a lot of opportunities for us to value add. So this is something which we think is great, actually from our point of view, in terms of looking into retail malls in Australia at this time.
Thank you. Next question is from Cheryl Lee of UBS. For the O&M Division, may we have an update on the status of the FLNG conversion projects with Golar. Can I ask Chris Ong?
First, we touch on Golar Gandria, it is quite well-publicized that with asset of Schlumberger from the one LNG JV. Ophir and Golar are looking for alternate investors. The notice to proceed has been extended from May 2018 to end of 2018, and we will monitor the situation closely with Golar.
For Golar GIMI, we are in advanced talked with Golar on the development of the Tortue field which GIMI is involved, where fit has been completed and right now, we are waiting for the notice to proceed by the end of the year.
Okay. The next question is from [ Ansh ] -- I can't pronounce this, of JPMorgan in Singapore. Out of the 2 SSTEC plot sales in third quarter '18 mentioned on Slide 60, profit from sale, of which plot was recognized in third quarter 2018?
This is plot 26 that was sold in August that has been recognized. There's another plot that will be recognized likely in the fourth quarter.
Okay, Derek Tan of DBS has 2 questions. First question, will you please help us understand the recent cooperation with 3 technology firms to develop more efficient data centers? Is there scope to plant a flag in China?
Can I ask Thomas Pang to address this question?
Thank you, Derek, for the question. The various partners will contribute different services to the joint venture. If there's a project that comes about, we will work hard to try to bring about new data centers in China, so partners could contribute, for example, in terms of equipment, design services, sales and marketing and so forth. And objective is, of course, to ultimately build new data centers in China. We have to be mindful that IDC license are restricted in China and, therefore, we need to rely on a local Chinese partner to make this happen. Thank you.
Thanks, Thomas. Derek has a second question. For Keppel Capital, how scalable are the senior housing and education real estate sectors? For that, may I invite Christina to address?
Derek, whenever we look at investments, we always look at long-term trends and fundamentals. So the long-term macro trends for the aging population is there. Most of the world's population will be aging, including Singapore, and this is really a huge scale in all the countries whether it is in U.S., in China, all over the world. So I think this is a very scalable kind of investments that we can do in terms of senior living.
For education sector, when I was in Vietnam, I was also surprised to find that actually Asian parents do put in a lot of monies into education, even in places like Vietnam. For ages 7 and below, the parents are prepared to pay about USD 1,000 a month just for education. So in terms of the size and scalability, we believe that both these sectors are actually indeed really scalable.
Okay, thank you, Chris. We are waiting for any other questions. Okay. This is a question from [ Simon Jong ] of DBS Singapore. First question: are you able to provide more insights into how the general offer of M1 and privatization of Keppel T&T would potentially be financed? Maybe I'll ask Hon Chew, you want to...
Yes, they -- we have already started discussions with banks on the lines, credit facilities for this. So we have already secured sufficient facilities for this purpose.
Yes. Second question from Simon Jong of DB -- maybe he's asking to see whether DBS is... second question is, could you share how the sales of The Garden Residences have been since July?
The sales at Garden Residences have been affected a little bit. I think we are still watching. So far, we have not given any discounts since it was launched. We have sold about 74 units to date. This is just under 50% of the units that were launched.
Okay, we have one more question from Siew Khee of CIMB Singapore. Did you start recognition of the semi-sub Awilco? If not, is it still on track for 4Q? Hon Chew? Or Chris?
Yes, I'll take the question. The progress of the semi-subs at the moment are mainly procurement and engineering, so there's very minimal recognition on the progress, and we are still on track for 4Q for the actual construction to begin.
Thank you. Okay, I think that's all the questions we have for this evening. Thank you very much for those who dialed in. Thank you.