Shareholders in Sagicor Real Estate Fund Limited are counting their whopping $10 billion losses for 2020, as the real estate Sagicor group subsidiary took a pounding on its hotel portfolio because of the COVID-19 pandemic. 

The exact shareholders’ losses amounted to $9.99 billion, which represents a mammoth jump of over 2,600 per cent compared to $0.038 billion losses recorded in 2019.

Sagicor Real Estate Fund, marketed as Sagicor X-Fund, took heavy weathering of COVID-19 in 2020, having positioned itself at the start of the year to capitalise on the earnings potential of the tourism sector in the medium to long term.

However, this strategic move was disrupted by the pandemic prior to which investment in the tourism sector represented a profitable business venture with strong growth potential. The outbreak of COVID-19 globally triggered a sharp decline in tourist arrivals and the demand for leisure activities.

Business activities across its hotel affiliated interests in Jewel Grande Montego Bay (JGM) and Playa Hotels & Resorts N.V. (Playa) were halted during the earlier part of the year while Double Tree by Hilton (DTO) continued operations but at reduced occupancy levels.

COVID-19 impact mostly felt on Playa

COVID-19 has negatively impacted earnings for the tourism sector, which led to an impairment charge of $7.93 billion on Sagicor X-Fund investments in associated company, Playa. To cauterise the mounting losses on the tourism holdings, Sagicor X-Fund sold its interest in JGM to Sagicor Pooled Investment Fund Limited effective September 22nd, 2020.

The transaction significantly improved X-Fund’s liquidity profile and generated inflows of $1.6 billion that were used to pay out maturing debt. The sale price was based on a current valuation, but amid the COVID-19 pandemic, property values declined significantly over the prior year resulting in a loss on disposal of $0.38 billion.

While Sagicor X-Fund demonstrated resilience in this challenging environment, it has been forced to adjust its business model to outmaneuver the effects of COVID-19. Early last month, affiliated company, Jamziv Mobay Jamaica Portfolio Limited disposed of its 20,000,000 ordinary shares in Playa for which it received inflows of US$96 million.

The strong inflow of liquidity will be redeployed into investment opportunities with a projected positive outcome. The share price of X-Fund Group is $8.25 at December 2020 compared $10.00 at December 2019.

Total revenues down by 59% owing to slump in tourism

Total revenue was $2.58 billion, down 59 per cent or $3.72 billion compared to the same period last year. Sagicor X-Fund’s direct hotel operations segment which comprised DTO and JGM contributed $2.65 billion, 57 per cent below the prior year.

Travel-related revenue continues to be impacted by the worldwide downturn of the tourism market. Hotel expenses of $2.39 billion for the year represent a 46 per cent reduction over the comparative period.

This has helped to cushion some of the impact from the reduction in revenues. The indirect hotel and commercial operations comprise investments in Jamziv and units in Sigma Real Estate Portfolio.

This segment reflects the share of loss from associate and fair value movement from Sigma Units in the current year. X Fund holds through Jamziv, 60.81 per cent of the 20,000,000 Playa shares and in the Sigma Real Estate Portfolio holds a three per cent interest.

Jamziv had share of loss from associate of $0.10 billion in 2019 versus $5.47 billion for the 2020. The decline in travel and leisure activities has directly impacted the operations of Playa.

In its 2020 financials released today March 2, Sagicor X-Fund reports that, “as our interest in the hotel is now sold, no further losses will be recognized in subsequent periods in relation to the operating results of Playa.”

Direct hotel operations               

JGM recorded a loss for the period of $0.48 billion compared to net income of $0.01 billion in the prior year. Current year’s results include realized loss on sale of JGM.

Net profit has also been severely impacted and on the decline, since the worldwide downturn for Tourism. DTO had performed reasonably well in 2020 considering the impact of COVID-19.

The company continues to outperform comparable properties in the Orlando market with occupancy levels of 47 per cent for the full year 2020. Hotel revenues for DTO were $2.43 billion (2019: $5.27 billion), with EBITDA of $0.34 billion (2019: $1.47 billion), and net loss for the period of $0.62 billion (2019: profit of $0.28 billion). The reduction compared to last year is a result of a significant decline in occupancy levels.