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Public company info - Regal Real Estate Investment Trust , 01881.HK

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Regal Real Estate Investment Trust, 01881.HK - Company Profile
Chairman Lo Yuk Sui
Share Issued (share) 3,257,000,000
Par Currency
Par Value 0.0
Industry Real Estate Investment Trust
Corporate Profile Business Summary: The principal activity of the Group is to own and invest in income-producing hotels, serviced apartments or commercial properties (including office premises) with the objectives of producing stable and growing distributions to Unitholders and to achieve long-term growth in the net asset value per Unit attributable to Unitholders. Performance for the year: For the year ended 31st December, 2019, Regal REIT recorded a consolidated loss before distributions to Unitholders of HK$2,102.3 million, as compared to a profit of HK$2,251.7 million for the financial year 2018. Business Review: HOTEL MARKET AND BUSINESS REVIEW Based on a recent publication by the World Bank Group, global growth decelerated markedly in 2019, with annual growth rate weakening to 2.4 percent, which was the lowest rate of expansion in many years. Growth in the United States also decelerated amid slowing investments and exports, as rising tariffs have increased trade costs. In China, the growth in its Gross Domestic Product (GDP) slowed down to 6.1 percent in 2019, albeit still within the targeted range of 6 to 6.5 percent. In Hong Kong, due to the significant adverse impact caused by the local social unrest since June last year and, as exacerbated by the unfavourable economic climate globally, the local economy entered into recession in the second half of the year. Hong Kong’s GDP overall contracted by 1.2 percent in real terms in 2019, which was its first annual contraction since 2009. Apart from the five Initial Hotels under the “Regal” brand, Regal REIT also owns a portfolio of select-service hotels under the “iclub” brand name, developed by the RHIHL group. Currently, there are four iclub Hotels owned by Regal REIT and operating in Hong Kong. Likewise, the businesses of these iclub Hotels in the second half of 2019 have met with intense pressure. The first iclub Hotel was the iclub Wan Chai Hotel, which is self-operated by Regal REIT and managed by Regal Hotels International Limited (“RHI”), the hotel management subsidiary of RHIHL. The average occupancy rate for this hotel for year 2019 was 83.7%, as compared to 95.9% in 2018, while its average room rate also dropped by 19.3%, with RevPAR consequently declining by 29.6% year-on-year. Two other iclub Hotels, the iclub Sheung Wan Hotel and the iclub Fortress Hill Hotel, have also been leased to the same lessee of RHIHL. Their combined annual average occupancy rate for the year was 81.4%, 11.1 percentage points below the level in 2018, while their combined average room rate decreased by 18.9%, resulting in a decline of 28.6% in their average combined RevPAR year-on-year. For the year 2019, these two hotels generated aggregate rental receipts of HK$92.0 million, representing the base rents under their respective market rental packages. As the net property income for each of these two hotels was below its base rent level, no variable rent was earned. Similar to the Initial Hotels, their rental packages are determined annually by an independent professional property valuer. The initial fixed terms of the leases for these two hotels expired on 31st December, 2019 and Regal REIT has exercised in May 2019 the option granted to it in the respective lease agreements to extend the two leases for another five years till the end of 2024. Under the market rental reviews concluded in November 2019, the base rent for 2020 for each of the iclub Sheung Wan Hotel and the iclub Fortress Hill Hotel was determined to be HK$41.0 million, a reduction of HK$5.0 million in each case below the annual base rent for 2019, with variable rent continuing to be based on 50% sharing of the excess of the net property income over the base rent of each hotel. The iclub Ma Tau Wai Hotel is the fourth iclub Hotel owned by Regal REIT, which was acquired in September 2017. This hotel carries the benefit of a lease with the same RHIHL lessee for a term of five years with escalating fixed rentals at an average yield of 4.5% per annum, which assures stable returns to Regal REIT during the hotel’s start-up period. The lease will be extendable to 31st December, 2027 at the option of Regal REIT, with rentals to be based on annual market rental reviews. For the year under review, this hotel recorded cash rental receipts of HK$58.9 million. The iclub Ma Tau Wai Hotel attained an average occupancy rate of 66.4% for the year 2019. As reported previously, Regal REIT concluded the refinancing of a 5-year term loan in the principal amount of HK$440.0 million, which was secured by a mortgage over the iclub Wan Chai Hotel in July 2019. Through this refinancing arrangement, Regal REIT was able to achieve a reduction in the loan interest margin, which will generate some savings on Regal REIT’s future financing costs. Prospects: The outbreak of the novel coronavirus in recent months is causing severe disruption to overall business activities, consumer spending as well as the global supply chains. The economic growth in China is expected to further moderate, due to the slowdown in its labour productivity growth and external headwinds. In the wake of added uncertainties, the central government of China has devised and implemented many supportive measures to bolster its economy, including cutting taxes, lowering interest rates and increasing public investment spending. In Hong Kong, the businesses in the consumer and tourism related sectors during the first few months of this year remained hard hit by the economic downturn and the coronavirus pandemic, with rising unemployment rates being recorded for these market sectors. Apart from the internal social problems yet to be resolved, the spread of the coronavirus and the potential trade tensions between China and the United States could well continue to affect the global economy and financial markets and adversely impact Hong Kong’s economic performance. With a view to easing the economic slowdown and rising unemployment, the government of Hong Kong has proposed a number of initiatives to assist businesses and to boost consumer spending. As mentioned above, the annual base rents for the five Initial Hotels, the iclub Sheung Wan Hotel and the iclub Fortress Hill Hotel for the year 2020 have been determined to be HK$792.0 million, in aggregate, which is only approximately 8.8% lower than the rental levels in 2019, while the iclub Ma Tau Wai Hotel is still under the initial fixed rental period. Accordingly, the income for Regal REIT for 2020 is, to a very significant extent, protected from the prevailing adverse market turbulences. However, if the current adverse situation does not improve in time, the market valuations of Regal REIT’s properties for 2020 as well as their market rental determinations for 2021 will be further impacted.

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