CDL warns of half-year profit hit, with hotel operations facing ‘significant’ loss

The Millennium Broadway hotel in New York.PHOTO: MILLENNIUM & COPTHORNE HOTELS

SINGAPORE (THE BUSINESS TIMES) – City Developments Limited (CDL) on Monday (July 13) said it expects the group’s pre-tax profit for the first half this year to reduce “substantially” from a year ago, dragged by its hotel operations segment amid the novel coronavirus pandemic.

CDL’s hotel operations segment is mainly led by its wholly-owned subsidiary, Millennium & Copthorne Hotels (M&C). With the privatisation of M&C in late 2019, the company’s losses are fully accounted for in CDL’s results.

Based on preliminary estimates, revenue per available room is expected to decline by about 50 to 60 per cent for H1 2020, CDL said on Monday.

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 ended June 30, 2020, versus a pre-tax profit of $76 million a year earlier.

M&C as an entity 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 hence accounted for under the investment properties segment, a CDL spokesperson said in response to The Business Times’ queries. 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 continue to be in place, CDL said.

It added that the hotel operations segment was primarily weighed down by to the prolonged Covid-19 pandemic, which 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 measures such as quarantines, strict social distancing and complete lockdowns of cities, which have adversely affected the group’s 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 about 10 per cent as the H1 2020 contributions will primarily be derived from projects including The Tapestry, Whistler Grand as well as Amber Park, compared with fully completed projects such as New Futura and Gramercy Park that yielded higher profit margins in the year-ago period.

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 in Singapore and overseas for the full year of 2020.

Notably, in H1 2019, there was also a $197 million pre-tax gain resulting from the closure of the group’s Profit Participation Securities 2 platform, following the sale of Manulife Centre and 7 & 9 Tampines Grande, which further widened the comparative gap for the investment properties segment.

In light of the above, CDL anticipates that its 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 2020. CDL on Monday said it is finalising the valuations of all properties under the Sincere portfolio to assess Sincere’s fair value, so as 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.

CDL expects to release its unaudited half-year results in early August.

As at 1.05pm on Monday, shares of CDL were trading at $8.49, down $0.22 or 2.5 per cent.

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