CDL’s Sincere deal brought it the Shanghai Hongqiao Sincere Center and a few headaches
In full-year guidance released Monday, City Developments Ltd said it expected the effects of the COVID-19 pandemic to continue into 2021 as the Singaporean developer predicted a loss for 2020.
CDL foresees its global hospitality segment, led by wholly-owned subsidiary Millennium & Copthorne Hotels Ltd, recording a deficit this year amid the ongoing COVID crisis, as the group continues to smart from its £776 million (then $989 million) buyout of the London-listed hospitality firm last year.
In its operational update for the third quarter, CDL said global occupancy for its hotels fell to 38.3 percent in the year to 30 September from 74 percent in the same period of 2019. Revenue per available room fell 62.7 percent to S$54.30 ($40.60) in the first nine months, down from S$145.40 in the year-earlier stretch.
“To ride out the turbulence, the group remains focused on cost-containment and capital management measures, even as it continues to drive forward its long-term growth plans,” the company said in the operational update issued Monday.
CDL’s SGX-listed shares fell by more than 2 percent in trading on Monday before closing the day down 0.89 percent at S$7.80 per share.
Waiting for a Turnaround
The hotel operations segment of CDL reported a pre-tax loss of S$208.2 million for the first half of 2020. M&C has made plans to sell assets and cut staff in a bid to right the ship during the unprecedented health crisis.
CDL chairman Kwek Leng Beng continues to pay for his M&C buyout
CDL reiterated Monday that it provided for impairment losses of S$33.9 million in its unaudited financial statements for the first six months of the year. Based on preliminary results of an independent year-end portfolio valuation now underway, the group expects to record further impairment losses for its portfolio in 2020.
Elsewhere in the organisation, CDL’s investment properties segment registered a 14 percent year-on-year decline in revenue for the first nine months of 2020 as the pandemic led to mall closures and Singapore businesses continued to keep staff working from home. In response to temporary COVID-related relief measures, the group extended over S$30 million in property tax and rental rebates to retail tenants in Singapore and overseas.
Sincere Misgivings
CDL also provided an update on its contentious investment in Sincere Property Group. In April, the Singaporean firm acquired a 51.01 percent joint controlling interest in the mainland Chinese developer.
In the unaudited financial statements for the first six months of the year, CDL estimated the fair value of Sincere’s net identifiable assets at RMB 9 billion ($1.37 billion). Based on its purchase consideration of S$882 million, which was on an agreed valuation of Sincere at RMB 8.6 billion, CDL recognised S$43.2 million of negative goodwill for its joint controlling interest and a S$7.7 million mark-to-market gain on a 9 percent call option, which was included in the takeover but cannot be exercised before July 2022.
Doubts over the Sincere stake purchase had prompted CDL director Kwek Leng Peck to leave the company in October after more than three decades in the role. Kwek, the cousin of CDL executive chairman Kwek Leng Beng and the uncle of CDL group chief executive and executive director Sherman Kwek, took issue with the mainland investment and with the group’s approach to the management of M&C.
In November, CDL announced the appointment of Deloitte & Touche Financial Advisory Services to assist in reviewing its investment in Sincere. According to Monday’s update, Deloitte completed its review of the investment and ascertained that there were good assets from which CDL could extract further value.
Even so, CDL said it would weigh Deloitte’s findings and those of auditor KPMG before finalising its own assessment of the fair value of the Sincere assets by the end of this year.
A Year to Forget
The announcement of a probable full-year loss is the latest setback for CDL after a wave of bad news during the last 12 months.
The group had the misfortune of completing its buyout and privatisation of M&C last November, one month before the coronavirus outbreak began upending the hotel industry.
M&C chief executive Clarence Tan quit in July of this year after just four months at the helm, and CDL reported in August that it barely broke even with a S$3 million net profit in the first half.
In Monday’s update, the group said it was optimistic that developments such as the pending global vaccine roll-out, gradual easing of border restrictions and the launch of air travel bubbles would help “bolster the green shoots of recovery”.
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