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CITY Developments Limited (CDL) expects to fall into the red in 2020 with a full-year loss, reversing from a net gain of S $ 564.6 million in 2019, dragged down by the prolonged impact of the coronavirus outbreak.
He anticipates further impairment losses, and UK subsidiary Millennium & Copthorne Hotels (M&C) and China-based joint venture (JV) Sincere Property Group are poised to spill red ink.
Meanwhile, Deloitte & Touche Financial Advisory Services has completed its review of CDL’s investment in Sincere and “determined that there are good assets from which the group can extract more value (from),” CDL said Monday.
The group noted in an earnings guide that there have been “signs of improvement and some early results of changes in operations, cost structure and marketing.”
However, the effects of the pandemic are expected to continue into 2021, even with expectations that vaccines will be available.
The group’s real estate development segment revenue in 2020 will be lower than a year ago. Overall profit margins in the first nine months had declined year over year as more revenue from mass market projects was recognized based on completion of progress.
Reported segment revenue from January to September also declined 15 percent from the prior year, even with a sequential recovery in the third quarter.
The segment sold a total of 710 units worth S $ 914.1 million during the July-September period, several times more than the previous quarter’s sales of 174 units valued at S $ 240.9 million, CDL said in a operational update on Monday.
Penrose, the group’s 566-unit joint venture condominium project in Aljunied, had also achieved “encouraging sales” after its launch in September.
The investment property segment similarly posted a 14% drop in revenue during the first nine months of this year. This came as CDL extended more than S $ 30 million of property taxes and rental refunds to retail tenants in Singapore and abroad. General sentiment in the office rental market was also affected by the pandemic, CDL noted.
In its operational update, CDL said that the third quarter saw a decrease in demand for Grade A office space, thanks to easing of restrictions to allow more employees to return to the office, as well as new tenants to take advantage of the opportunity. to lease. privileged space at lower rents.
CDL’s office portfolio in Singapore had a committed occupancy of 92% as of September 30. More than 96% of the ownership of its flagship office in Raffles Place, Republic Plaza, is leased.
Meanwhile, its retail and food and beverage (F&B) tenants have reopened their business activities, with the exception of the entertainment business. CDL said F&B remained resilient in the last quarter, with some retailers looking for expansion opportunities. City Square Mall also continued to attract new tenants.
The hotel operations arm, led by wholly owned M&C, anticipates full-year losses by 2020, given the collapse of global travel and tourism amid the pandemic.
This is despite the M&C entities’ recovery from a loss in gross operating profit in Asia since May and New Zealand since June, and M&C global gross operating profit has been positive since July.
For the January-September period, revenue per available room (RevPAR) fell 63 percent for the year, while hotel revenue plunged 60 percent. Overall occupancy at its hotels was cut in half, to 38.3%, from 74% a year ago.
“Aggressive cost containment measures, coupled with marketing efforts to reach local retail customers (in the absence of international air travel), have helped room and occupancy rates rebound from lows experienced a few months earlier. “said CDL.
The M&C occupancy rate at the end of the year is expected to be at least half of the 73 percent achieved last year.
About 11 percent of the CDL group’s global portfolio of 153 hotels were still temporarily closed as of September 30, down from 28 percent in the previous quarter.
The group had forecast impairment losses of S $ 33.9 million in its unaudited financial statements for the six months ended June, as announced on August 13.
CDL said on Monday that it expects to post further impairment losses on its portfolio for 2020, based on the preliminary results of an independent year-end valuation of its portfolio.
This takes into account the weaker performance of the portfolio along with market uncertainty from the pandemic, particularly in the hotel industry, he added.
As for Sincere, in which CDL bought a 51.01% stake in April, the joint venture is expected to be in a losing position again in the fourth quarter. Therefore, the group expects to acknowledge its share of Sincere’s losses throughout the year.
During the first nine months of 2020, the group accounted for its share of losses in Sincere for a total of S $ 76 million, due to lower sales and property transfers as a result of the Covid-19 outbreak, financing costs and the launch of the fair. -Revaluation of the portfolio of properties under development.
CDL previously estimated the provisional amount of the fair value of Sincere’s net identifiable assets at nine billion yuan (S $ 1.83 billion), as indicated in its unaudited semi-annual financial statements released on August 13.
Based on this fair value and the purchase price of 4.39 billion yuan for its stake in the joint venture, the CDL group had recognized S $ 43.2 million of negative goodwill for the joint controlling stake in Sincere, and a profit of S $ 7.7 million at market price. on the 9 percent purchase option that cannot be exercised before July 2022.
The real estate giant plans to finalize the fair value assessment of Sincere’s identifiable net assets before December 31, 2020, along with the completion of the Sincere portfolio property valuations, Deloitte findings and completion of the KPMG audit.
Despite its expectations of a loss for the full year, the group’s overall commercial and financial position remains healthy, with sufficient liquidity to meet operational and financial commitments and weather this crisis, CDL said.
The group’s total cash and unused available committed banking facilities amounted to approximately S $ 4.7 billion as of September 30.
CDL said it does not expect the current pace of recovery to significantly offset the adverse impact on its operations and financial performance for this year.
CDL shares were trading S $ 0.02 or 0.3% higher at S $ 7.89 as of 10:42 am Monday.
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