CDL Hospitality Trusts flags 60-70% fall in first-half distribution on Covid-19 impact

CDLHT's overseas properties are either closed temporarily or operating at low occupancies. PHOTO: CDL HOSPITALITY TRUSTS

SINGAPORE (THE BUSINESS TIMES) - The managers of CDL Hospitality Trusts (CDLHT) on Friday night (July 17) guided that the stapled group's financial performance for fiscal 2020 will be "severely affected", amid the unprecedented downturn in global tourism and travel as a result of the novel coronavirus pandemic.

For the six months ended June 30, 2020, CDLHT's distribution per stapled security after retention is expected to decline by 60 to 70 per cent, down from 4.16 cents a year earlier, the managers said.

This comes as distributable income after retention is expected to fall by the same proportion of 60 to 70 per cent, from $50.4 million a year ago.

Based on preliminary estimates, CDLHT's total return after tax for H1 2020 is expected to record a "marginal loss", versus the $30.6 million profit recorded for H1 2019. For the first half of this year, CDLHT will record one-off winding down costs arising from the divestment of Novotel Singapore Clarke Quay, which was completed on July 15. Excluding these one-off expenses, CDLHT's total return may register a "slight" profit, the managers said.

As for property valuations, the managers said they will continue valuing CDLHT's assets once a year at the end of the financial year, and any fair value gains or losses on properties will only be recorded in its full-year results.

However, the managers highlighted that there is uncertainty relating to the carrying amounts of CDLHT's investment properties and fixed assets as at June 30, 2020, as these amounts are based on independent valuations as at Dec 31, 2019, and have not taken into account the impact of the Covid-19 pandemic, which "may be significant".

The market uncertainty has resulted in challenges in providing accurate valuations for the properties, as there is a lack of visibility regarding future cash flows as well as insufficient market transactions available for benchmarking to adopt meaningful capitalisation rates in the current market, the managers said.

Their boards of directors are thus of the view that it may be inaccurate to quantify any impact on the carrying amounts, as the assumptions used to derive valuations would be "very subjective and arbitrary", given that the situation is still highly fluid and evolving, the managers added.

International travel curbs largely remain in place, even though the markets which CDLHT has a presence in have seen their strict Covid-19 measures progressively relaxed since the middle of this year.

CDLHT's overseas properties are either closed temporarily or operating at low occupancies, except for its New Zealand hotel, Grand Millennium Auckland.

Nonetheless, the occupancies of the Singapore and New Zealand hotels continue to be supported by the demand for accommodation facilities that can be used for isolation purposes, the managers said.

In addition, occupancies at CDLHT's Singapore hotels are supported by demand from foreign workers affected by border closures.

Overall, revenue per available room across the portfolio "has been and will continue to be significantly affected", the managers said.

"While sentiments point to a start of the recovery of international travel demand in 2021, the situation remains fluid, and there is much uncertainty on the recovery trajectory. A viable medical solution is vital to the pace of the pickup in international travel."

The managers noted that CDLHT has sufficient liquidity and that there are no material concerns over its ability to fulfil its near-term debt obligations and operational needs.

In June 2020, CDLHT secured an additional $100 million committed multi-currency revolving credit facility. The trust also registered net cash inflow of $26.8 million from two completed transactions this month, namely the divestment of Novotel Singapore Clarke Quay and the acquisition of W Singapore in Sentosa Cove.

The managers will release the unaudited financial results for H1 2020 before trading hours on July 29.

CDLHT stapled securities closed at $1.02 on Friday, down $0.01 or 1 per cent, before its profit guidance.

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