Hotel operations face ‘significant’ losses with revenue per available room down 50%-60%
City Developments Limited (CDL) expects its pre-tax profit for the first half to be substantially lower than last year, due in large part to the impact the pandemic has had on its hotel operations.
The group’s hotel unit is led mainly by its wholly-owned subsidiary, Millennium & Copthorne Hotels (M&C), which was privatised late last year, so its losses are fully accounted for in CDL’s results.
Preliminary estimates indicated revenue per available room declined by about 50 per cent to 60 per cent in the first half, CDL said yesterday.
The hotel operations segment, for M&C as an entity, is anticipated to sink into the red with a pre-tax loss of about $120 million to $140 million for the six months to June 30, compared with a pre-tax profit of $76 million for the same period last year.
M&C includes the hotels it owns and operates, as well as CDL Hospitality Trusts, where the bulk of the hotels are on a master lease structure and thus accounted for under the investment properties segment, a CDL spokesman said.
It also includes the share of results from First Sponsor and CDL New Zealand, where there are property development profits.
The “significant” losses for hotel operations come despite “aggressive” cost-containment measures that remain in place, CDL said.
It added that the pandemic has resulted in widespread travel restrictions, an unprecedented collapse in global tourism and mass cancellations or postponement of events.
In addition, many countries have imposed quarantines, strict social distancing and complete lockdowns that have adversely affected hotel operations, even with the receipt of government grants.
“The near-term outlook continues to remain highly challenging and uncertain until the pandemic situation abates together with the reopening of international borders,” CDL said.
Meanwhile, the group’s property development segment is expected to see revenue declining by about 10 per cent as first-half contributions will primarily be derived from projects such as The Tapestry, Whistler Grand and Amber Park.
This compares with fully completed projects such as New Futura and Gramercy Park that yielded higher profit margins last year.
CDL’s investment properties segment was also affected, taking into account over $30 million of property tax and rental rebates given to tenants, especially for its malls here and overseas for the full year of 2020.
In the first half of last year, there was also a $197 million pre-tax gain from the closure of the group’s Profit Participation Securities 2 platform after the sale of Manulife Centre and 7 & 9 Tampines Grande.
CDL now anticipates that net attributable profit after tax and minority interests (Patmi) for the first half of this year will be “materially and adversely” affected.
However, this has not taken into account the negative goodwill the group expects to record from acquiring a 51 per cent stake in Chinese real estate developer Sincere Property Group, which was announced in April.
CDL said yesterday that it is finalising the valuations of all properties under the Sincere portfolio to compute the negative goodwill, which will mitigate the decline in Patmi.
Overall, the group said it has “sufficient liquidity to weather this crisis”, with total cash and undrawn and committed credit facilities exceeding $5 billion.
It expects to release its unaudited half-year results early next month.
CDL shares closed down 3.9 per cent to $8.37 yesterday.
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