Mandarin Oriental Hotels Reports $435.5M Loss for 2020 1H

The Mandarin Oriental Hotel Group said late last week that its net loss in the first half of 2020 widened to $435.5 million from $7.1 million over the same period one year ago, as the COVID-19 pandemic shuttered its hotels and a collapsing property market cut the value of a prime asset in Hong Kong.

The bulk of the losses suffered by the division of Hong Kong’s Jardine Matheson Group were due to a $334 million non-cash writedown in the value of the site of the former Excelsior Hotel, the company said in an announcement to the London stock exchange.

The company had shuttered the Causeway Bay landmark early last year in hopes of redeveloping the site as a $3.8 billion office project, only to have that plan run aground on planning permit obstacles and a slide in commercial rents across Hong Kong in the first half.

Also last week, Jardine Matheson’s property development division, Hongkong Land declared a 24 percent drop in its underlying profit for the period from January through June, as rent relief to struggling shopowners, reduced income from turnover rent and a slowdown in residential completions hurt its revenue.

Next Year Could Look Much Like 2020

“The group saw substantial underlying losses in the first half of the year as a consequence of the COVID-19 pandemic,” Mandarin Oriental chairman and Jardine scion Ben Keswick said in a statement. “A material recovery in business levels is not expected until 2021 at the earliest and a significant further loss is therefore likely in the second half of 2020.”

Most of Mandarin’s hotels were closed for at least part of the first half of 2020 as governments grounded flights after COVID-19 spread beyond China and across the world in February and March. The group’s hotels which remained open had “single-digit percentage” occupancy levels for much of the second quarter, the company said.

The depressing occupancy figures come as visitor arrivals in the company’s home market suffered a historic slump in the first five months of 2020, totalling just over 3.5 million — an 88.2 percent decline from the same period in 2019, according to the Hong Kong Tourism Board.

As a result, total revenue from Mandarin Oriental’s hotels under management slumped to $276.4 million — down 57 percent  from a year ago.

Despite the challenging market conditions, the company said it is well-placed to weather a prolonged downturn given its financial position. As of end-June, the group had $187 million in cash reserves and $217 million in available credit lines.

Running Aground in Causeway Bay

Mandarin Oriental, which owns and manages 33 luxury hotels and serviced residences globally, put the Excelsior Hotel on the block in June 2017 at a reported asking price of HK$27 billion ($3.48 billion), which property brokers said could have set a new record high price in Hong Kong at the time.

The company, however, withdrew the proposed sale three months later after receiving underwhelming offers and decided to redevelop the hotel site as a mixed-used commercial project.

That plan has since been thwarted by city authorities, which in April this year denied Mandarin Oriental’s latest application to build a 34-storey, 690,000 square foot (64,100 square metre) retail and office project on the site.

In June, the group was still seeking a pathway to implementing its super-sized plan, which had been rejected due to traffic concerns, but had earlier received approval to build a 30-storey, 684,000 square foot tower on the property.

If Mandarin Oriental does receive approval to redevelop the property, it is facing a more challenging leasing market, after office rents in Causeway Bay dropped by 9.2 percent in the first half of 2020, according to a report by JLL. Over the same period, the property consultancy found that capital values for office buildings in Hong Kong fell by more than 13 percent.

That drop in asset prices led the group’s sister company, Hongkong Land, to report non-cash losses of $2.18 billion over the first half of the year, as sliding rents pulled down the value of its commercial portfolio.

Excluding revaluation losses, the London-listed hospitality group said underlying losses for the period would have been $102 million, compared to a profit of US$11 million a year ago, even after the company implemented a number of cost cutting measures.

Ready to Weather the Downturn

“The board remains confident that the group’s robust financial position and strong brand will enable Mandarin Oriental to weather the downturn and return to profit when luxury travel begins to recover,” Keswick added in his introduction to the half-year report, which included some positive signals amid the hospitality gloom.

Occupancy levels in mainland China rebounded to about 40 percent in June, and many of the group’s hotels in other markets have begun to reopen. However, the company cautioned that demand will likely remain low across most markets.

Despite the losses and challenging near-term outlook, the company remains unperturbed as it pursues new projects and proceeds with existing ones.

In July, Mandarin Oriental signed a fresh management contract for a new hotel and serviced residence project in Vienna, which is scheduled to open in 2023.

The group’s net debt climbed to $412 million as of end-June, compared with $300 million a year ago, reflecting expenses associated with the renovation of the Mandarin Oriental Ritz in Madrid and the redevelopment of the former Excelsior Hotel.