News Corp’s 61% owned online real estate arm, REA Group has revealed write downs in the value of its Asian assets totalling $180 million on a preliminary estimate.
It is the first of what is expected to be a series of write downs revealed by the Murdoch family company between now and early August when news releases its fill year and 4th quarter results (as will REA Group).
REA is the single largest investment News Corp has (REA is valued at $A8.9 billion and News Corp at $A10.9 billion on the ASX), the news of the write down means that it will report a fall in earning for the year, while News Corp will report another massive loss.
Those write downs will see Foxtel wipe the slate clean of its shareholding in Ten network, while write downs are expected or warned of in Fox Sports Australia and in the value of the company’s big newspaper operations, especially in the US, UK and perhaps Australia.
They will be on top of the more than $700 million write downs revealed at December 31 – the end of the second quarter and first half of News’ 2016-17 financial year.
In a statement to the ASX yesterday REA said “The impairment relates to the carrying value of goodwill for the Group’s Asian reporting segment and reflects a downturn in market conditons (sic) in Asia.”
"The impairment has no effect on current trading and will not impact REA Group’s compliance with its banking covenants. It is intended that REA Group’s final dividend for FY2017 will be determined based on the Group’s Net Profit after Tax (NPAT) excluding the above impairment charge and the $161.6 million profit from the sale of the European operations,” REA said in yesterday’s statement.
In determining the carrying value of its assets, REA Group considers a range of macro assumptions including market conditions, volume of property transactions and new development projects. There has been a decline in several Asian property markets, as a result of changes to government and banking regulations.
"In Malaysia, there has been a 33% reduction in the number of properties sold1. In Hong Kong, the Government has introduced a number of cooling measures to soften a highly competitive market over the past few years, including the increase of stamp duty for residential property transactions to 15% introduced in November 2016.
REA Group CEO, Tracey Fellows said in the statement: “Market conditions in Asia have been challenging but we remain confident in the long-term growth opportunities in the region. We continue to invest in senior leadership to drive strategy and our focus on innovation and marketing positions us well for the market recovery.”
“The impairment outcomes are subject to the finalisation of the full year results, which are expected to be released on 11 August 2017.” News Corp’s results are expected to be released the same morning.
Earlier this week REA Group revealed plans to buy control of a mortgage broker for $67 million (for an 80% stake in the broker called Smartline) and confirmed details of a joint venture with the NAB for a REA brand home loan and other products.
Domain, Fairfax Media’s online property business matched that announcement, though with a joint venture with a start up mortgage broker called Lendi.
REA shares ended down 0.7% at $67.45.