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Property bellwethers CDL, Ascott sound warning on H1 profit hit

TWO property bellwethers, City Developments Limited (CDL) and Ascott Residence Trust (ART), warned on Monday of dour performance in their first-half results, having been stung by lockdowns and other safe-distancing measures in various cities that were imposed as a result of the Covid-19 pandemic.

As at 1.57pm on Monday, stapled securities of ART were trading at 99.5 Singapore cents, down 3.5 cents or 3.4 per cent, while shares of CDL were trading at S$8.49, down S$0.22 or 2.5 per cent.

CDL 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 pandemic. It added that the near-term outlook "continues to remain highly challenging and uncertain until the pandemic situation abates together with the reopening of international borders".

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 S$120 million to S$140 million for the six months ended June 30, 2020, versus a pre-tax profit of S$76 million a year earlier. 

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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.

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 S$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 S$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.

To be clear, 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.

Similarly, ART's distribution per stapled security for the six months ended June 30 is expected to fall by 65 per cent to 75 per cent from the 3.43 Singapore cents recorded in the first half of 2019, the managers said, reflecting a challenging global environment in the first half of the year.

In exercising "prudence in capital and cash flow management", the managers may review the level of distribution payout to stapled securityholders.

As the timing of a full recovery remains uncertain, the managers are expecting the revenue per available unit of ART's properties to remain "under pressure" in the near term.

Signalling the adverse impact on its upcoming financial results, the managers said ART's available income for distribution for the first half of 2020 is expected to be reduced by 55 per cent to 65 per cent from the S$74.6 million recorded a year ago for the same period.

The stapled group's total return for H1 2020 is expected to decline by 80 per cent to 90 per cent from the S$212.5 million recorded a year ago for the same period. Excluding fair-value gains for H1 2019, total return for H1 2020 is expected to fall by 55 per cent to 65 per cent compared with H1 2019.

In H1 2019, ART recorded fair-value gains of S$140.6 million after tax and minority interest. This included a realised fair-value gain of S$135 million from the divestment of Ascott Raffles Place Singapore.

The managers said ART's geographically diversified portfolio has provided resilience to its earnings under usual business conditions.

Both ART and CDL said they have "sufficient liquidity" to weather this crisis, with CDL noting that it has total cash and undrawn and committed credit facilities exceeding S$5 billion.

ART will report its H1 2020 unaudited financial results on July 28 before 8am, while CDL expects to release its unaudited half-year results in early August.

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