Sagicor Real Estate X-Fund earnings down with tourism decline

Sagicor Real Estate X-Fund earnings down with tourism decline

Sagicor remains confident in the group's investment

Observer business writer

Wednesday, September 23, 2020

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As COVID-19 continues to drag down the global tourism industry, Sagicor Real Estate X-Fund's heavy investment into tourism-affiliated enterprises has taken the consistently profitable St Lucian company into a consolidated net loss of $8.05 billion.

Net loss attributable to shareholders now stands at $5.1 billion for the six months ending June 30.

The real estate investment company's earnings were significantly impacted by the loss from its associate investment in Playa Hotels and Resorts which suffered a US $87.5 million (J$12.4 billion) loss along with the decline in performance of its Double Tree Orlando (DTO) and Jewel Grande Montego Bay resorts (JGM).

The sharp impact on the tourism shutdown in the second quarter led to Playa raising US$224 million in a mixture of debt and equity financing that led to a material change in the discount rate for X-Fund's investment in the hotel group and a loss on dilution of $380.7 million due to the decrease in ownership from more shares being issued. Playa also sold the Jewels Dunn River and Runaway Beach Resort for US$60 million which it acquired from X-Fund in their original 2018 deal as a means to bolster its capital base.

Speaking at the company's recent annual general meeting, Chief Executive Officer of X-Fund Brenda Lee-Martin gave an insight into the company's performance in the last six months which included the highlight of the group's first strong two months.

“We still continue to suffer from sharp declines and the focus for us has shifted to preserving cash to cover our near- to medium-term needs. We see where liquidity has become key to remain viable,” Lee-Martin told shareholders.

X-Fund had $1.8 billion in cash at the end of the second quarter with its investment in associate being valued at $21.7 billion, 26 per cent lower than the $29.5 billion at the end of the 2019 financial year. This represented about half of the group's total assets which stood at $43 billion. The quarter also saw hotel revenue drop to $227.7 million which was a far cry from the US$2.9 million and US$1 million in net profit recorded for its DTO and JGM operations.

With respect to the DTO operations in Florida, it was revealed that the hotel resort was never closed during the entire period but was affected by low occupancy levels. As a result, the hotel laid off some staff, deferred all non-critical expenditures and expansions and has availed itself to government aid through the use of the Cares Act. At the moment, DTO's occupancy remains around 20 – 30 per cent which has been boosted by local travel in the vicinity, and even recently benefited from the Labour Day holiday in the USA which sharply increased capacity. However, the resurgence of COVID-19 has had a negative impact on the level of bookings for the resort.

The JGM resort hasn't had similar luck mainly due to the current travel climate which has seen a 70 per cent decline in international arrivals to Jamaica along with measures meant to safeguard guests and staff. Some of these measures included more contactless protocols, a negative COVID test, quarantine period, expansive layout of its restaurants, more takeout menus and free 24 hour cancellations at the properties.

Despite all of the current forecasts for tourism's return to 'normal' to be somewhere around mid-2022, chairman of X-Fund and President and CEO of Sagicor Group Jamaica Christopher Zacca remains confident about the Sagicor Group's investment in Playa which reopens its final hotels next week Thursday along with the general tourism space in the region.

“The company has liquidity which will allow it to get through conservatively this difficult period. We have a number of plans on the board to grow this company once the environment changes. We have supreme confidence in the hotel properties that we have an interest in. In regions in which we operate, hotels have been the most resilient in terms of COVID-19 protocols, non-transmission of the disease to guests and staff. It should be noted that the book value per share of X-Fund is well above its trading price currently. We've seen the start of a return to normal, and as that accelerates through next year, we expect that this company will continue to be a fulsome and viable investment to shareholders,”Zacca said.

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