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Unveiling Shangri-La's 2024 Financial Intricacies · Investor Exchange

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Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
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Ever notice how some places just kind of give you that vibe?
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Like luxury and history all rolled into one. I'm talking about those top tier hotels.
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But let me tell you, behind all that glitz and glamour, there's a whole lot
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of financial wheeling and dealing going on.
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And today, we're going to take a deep dive into one of the big players in that
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world, Shangri-La Asia Limited. Absolutely.
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Now, they're incorporated over in Bermuda, their stock code 00069,
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and they just released the 2024 final results.
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So we're going to unpack all of that for you today.
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Yeah, we're going to get into the nitty gritty of their financial performance
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for the year ending December 31st, 2024.
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See how it stacks up against their 2023 numbers. We've got their official report
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right here, and we're not just going to focus on the numbers themselves.
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We want to understand the why, the how, why did they perform the way they did,
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and what's their outlook?
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What do they see coming down the road? Now, for you, the listener,
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we know you're busy, right? You want the insights. You want to understand this stuff.
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But you don't want to be drowning in a sea of spreadsheets.
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So think of us as your guides, your Sherpas through this financial mountain
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range, leading you straight to the peaks, the key takeaways you need.
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So let's kick things off with the big one, the headline figure, overall revenue.
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So the report shows that Shingula actually saw their consolidated revenue edge
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up a bit in 2024, up by 2%, to be exact, reaching USD $2,185.4 million.
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At first glance, that kind of hints at things moving in the right direction,
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right? Yeah, yeah, it does.
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But this is where things get a little more, well, let's just say interesting, shall we?
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They also talk about their effective share of revenue. That takes into account
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their ownership stakes in other companies.
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And that number actually went down by 4.2%, landing at USD 2,653.6 million.
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So we've got these two numbers, both about revenue, but painting slightly different
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pictures. What's going on there? Okay, so the report is pretty upfront about this.
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The main culprit here is a, and I'm quoting them here, sharp 73.9% decline in
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property development for sale revenue. Oh, wow.
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Yeah, we're talking a significant drop from USD 185.5 million in 2023,
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all the way down to USD 48.5 million in 2024.
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Now, for those listening, this is a big takeaway. While their core hotel business,
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the bread and butter, saw some growth, their property development side took a real hit.
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This could indicate a few things, maybe a shift in their overall strategy or
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some headwinds in that specific market segment. It's worth keeping an eye on.
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Yeah, that's a pretty stark contrast.
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Okay, so let's see how all this impacted their profitability.
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What did the report have to say about their EBITDA?
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And for those not familiar with the term, EBITDA gives us a look at their operating
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profitability before things like interest and taxes are factored in.
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It's a good way to assess their core earnings power. Well, we see a similar
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story with EBITDA as we did with revenue.
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For the company and its subsidiaries, EBITDA decreased by 3.5%,
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coming in at USD $503.9 million.
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And just like with revenue, their effective share of EBITDA,
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that broader view, took a bigger hit, flipping by 13% to USD $760.1 million.
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Okay, so it seems like that property development slump is making its presence
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felt on the bottom line too, huh? Absolutely.
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Their effective share of EBITDA from property development for sale,
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that plummeted like dramatically.
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An 87.9% reduction to be exact, falling from USD 97.9 million to a mere USD 11.8 million.
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But that's not the whole story. They also point to the normalization of operating
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expenses in our hotel operations segment.
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That played a role too. What does that mean, normalization? Well,
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it suggests that some of the cost savings they likely saw during the pandemic,
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maybe reduced staffing or scaled back services, those weren't sustainable in the long run.
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So 2024 saw those expenses creeping back up.
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So kind of a double whammy there, much less profit from selling properties and
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costs going up in their hotel operations.
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All right, let's move on to the actual profit attributable to the owners,
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the shareholders. What's the story there?
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Profit from operating items took a hit, decreased by 10.2%, landing at USD 115.9 million.
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However, and this is interesting, the report highlights that this impact was
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significantly mitigated by tax savings.
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How did that happen? Well, because of those lower profits in property development,
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their overall tax bill was lower. It's like an unexpected silver lining, right?
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They also got a boost from favorable net exchange gains of USD $13.3 million at the corporate level.
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That's a positive swing compared to the net exchange losses they saw in the previous year.
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Ah, so some financial maneuvering and external factors helps soften the blow
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a bit. But what about the big picture for the owners?
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Okay, overall profit attributable to owners, that's still decreased by 12.3%
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to USD $161.4 million. This also reflects a USD 9.6 million year-on-year decrease
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in net gains from non-operating items.
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So while those tax breaks and exchange rate gains helped, it wasn't enough to
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completely offset the profit declines.
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Right, so a mixed bag at the top level. Revenue growth, but some serious challenges
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in profitability, especially in that property development segment.
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Okay, let's break it down further, see how their different business segments performed.
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The report mentions four main ones. Right. So you've got hotel properties.
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That's their core business, developing, owning and running hotels.
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Then there's hotel management and related services where they manage hotels
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for themselves and for other owners.
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Next up is investment properties, which includes things like office buildings,
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commercial spaces, those service departments they rent out.
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And finally, we've got that property development for sales segment we've been
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talking about. All right. Let's start with the heart and soul hotel properties.
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What kind of year do they have in 2024? So on a consolidated basis,
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just looking at the hotels they fully own and operate, revenue for hotel properties
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inched up by 0.9%, reaching USD $1,944 million.
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But here's where things get really fascinating. When you look closer,
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there are some big regional differences, and those are really telling.
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Like what? Well, Hong Kong, they saw healthy growth 5.8%. The Philippines,
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they jumped by a whopping 16%.
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The report specifically calls out business recoveries for the growth in Hong
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Kong, and the reopening of the Makati Shangri-La is a big driver in the Philippines.
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Yeah, that makes sense, with travel coming back in so many parts of the world.
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But we're all regions on that upswing. Not exactly. They actually saw revenue
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dip in mainland China, down 6.7 percent.
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Singapore, a slight decrease, 1.5 percent.
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And the UK, down 0.8 percent. So a real mixed bag depending on where their hotels are.
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Right. And what about those key performance indicators we always hear about
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with hotels? Things like occupancy rates and REVPR.
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Right. REVPR, that's revenue per available room. It gives you a sense of how
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efficiently they're filling those rooms and what kind of pricing power they have.
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Exactly. Okay, on an unconsolidated basis, so now we're looking at all the hotels
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they have a stake in, not just the ones they fully own and operate,
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overall occupancy ticked up slightly to 63%, up from 62% the year before.
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REVPR, however, stayed flat, USD 108. So they're filling more rooms,
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but they're not necessarily squeezing more revenue out of each room.
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Okay, so getting more heads in beds, but maybe not charging more per bed.
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Let's dive into those regional insights you mentioned.
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Hong Kong, you said, was a bright spot. Yeah, definitely.
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Hong Kong had a strong recovery. Occupancy hit 80 percent and ref pair was up by a healthy 8 percent.
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They attribute this to a surge in travel from mainland China and the full reopening
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of the island Shangri-La really shows the power of those key travel markets.
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What about mainland China?
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They saw a revenue dip in their hotel properties there, right?
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Yeah. And here's the thing.
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Even though occupancy in mainland China overall went up a bit,
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their ref pay actually went down by 4 percent.
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And get this, the report highlights that tier three and four cities got hit even harder.
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Ref pair down 14 percent there. That could indicate different recovery rates
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in different parts of China.
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Something to consider when we're thinking about their future performance in
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that massive market. Right. Interesting. And Singapore.
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They also saw a revenue dip in hotel properties.
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Yeah, Singapore, pretty stable occupancy, flat year over year.
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But they did see a little decrease in ref pay, which they think is due to increased competition.
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More hotels popping up, fighting for those guests. Makes sense.
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Malaysia, though, they had positive revenue growth in hotel properties,
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right? What was driving that?
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Yeah, Malaysia, strong recovery there. Ref Payar up by 11%. They point to an
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increase in flights, especially from mainland China, as a key factor.
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Again, that direct link between travel and hotel performance.
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That gives a really clear picture of how their hotel property segment did.
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Some clear winners and losers, depending on location.
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Let's move on to hotel management and related services. How'd that part of the business perform?
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So this segment saw net revenue increase by 3.6% to USD $98.2 million,
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and they highlighted some new managed hotels coming online,
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including the JN Kunming in mainland China, where they own a 45% stake,
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as well as the Shangri-La Nanshan in Shenzhen and Shangri-La Phnom Penh.
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Both of those are managed for
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other owners, so they're definitely growing their management portfolio.
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So not just relying on their own hotels, but expanding by managing properties for others, too.
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How'd those managed hotels perform overall? Okay, so overall,
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the weighted average occupancy for their managed hotels, that increased slightly,
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but REFPAR decreased by 2%.
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However, their gross revenue for this segment, that jumped significantly by
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15.2%, reaching USD 258.4 million.
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So while profitability per room might be down a tad, the scale of their management
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operations is definitely expanding. Makes sense.
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Moving on to investment properties, this is where they're generating revenue
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from those office and commercial spaces, right? Exactly.
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And this segment saw a pretty impressive increase in consolidated revenue,
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up by 16.2%, hitting USD $125.8 million. Okay. What was driving that growth?
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They specifically mention strong performance in Mongolia, both increased rent
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and almost full occupancy there.
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Sri Lanka did well, too, also with increased rent and occupancy,
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probably reflecting the country's economic upswing.
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And they got a boost from the newly opened Shangri-La Center in Fuzo.
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So some definite wins in that portfolio. Were all their investment properties
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doing that well, though?
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They did mention a slight revenue dip from their investment properties in Malaysia.
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But overall, that segment was a strong performer, definitely helping to offset
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some of the challenges they faced elsewhere.
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Right. And finally, let's come back to property development for sale,
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the segment that really impacted their overall numbers.
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Yeah. So revenue here, it actually jumped by a big percentage,
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43.8%, reaching USD 2.3 million.
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But remember, we talked about this earlier, this is coming off a very low base
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because of some sales in Sri Lanka. It's still way lower than the previous year.
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So big percentage gain, but the actual contribution is still small,
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which is why it had that negative impact on their overall revenue and EBITDA.
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Right, right. Okay, so we've gone through the numbers for each segment.
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Now, the big question, the one I know you're thinking about,
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listener, why these particular financial results in 2024?
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What were the big wins, the big challenges? What shaped their performance?
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That's the million-dollar question, isn't it? On the positive side,
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they definitely benefited from that travel rebound in several key regions.
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Hong Kong, the Philippines, Malaysia, and even further afield in Japan, Australia, France.
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Their investment properties in Mongolia and Sri Lanka, those performed really well.
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And their hotel management and related services with those new contracts,
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that was definitely a plus.
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What about their costs? Do they mention anything about how they manage those?
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Yeah, they highlighted effective cost management in some areas.
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They mentioned their interest costs were well contained.
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They also made a smart move refinancing some of their debt in Renminbi,
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which helped reduce their overall borrowing costs and manage those currency
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risks, especially given their large presence in China.
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And importantly, they achieved record high free cash flow, which they attribute
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to solid performance in their property operations and a more disciplined approach
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to spending on new projects.
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That healthy cash flow, that's a really positive sign for the company.
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So good news on the efficiency and financial management front.
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Now, what about the challenges?
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All right. So on the flip side, that slowdown in the mainland China hotel market
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in the latter half of 2024, that was a major headwind for them,
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especially considering how much they rely on that market.
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They also faced increased competition, more hotels, more pressure on pricing
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in key markets like Singapore and London.
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And then, of course, there's that significant decline in revenue and profitability
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from property development for sale.
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That was a big one. And those rising operating expenses in hotel operations, right? Exactly.
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The normalization of those expenses after that period of lower costs during
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the pandemic, that put a dent in their hotel profitability.
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They also had to recognize some impairment losses on some of their hotel assets
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in mainland China and the Maldives, basically a reassessment of their value.
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And lastly, their net gains from non-operating items decreased compared to the
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previous year, which also contributed to the overall profit decline.
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Okay, so a mix of external market forces, some internal challenges within specific
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segments, and some accounting adjustments, all playing a role in shaping their 2024 performance.
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So looking ahead, what's next for Shangri-La? What's their outlook?
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And what are they doing strategically to position themselves for the future?
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Well, despite the dip in overall profit, they really emphasize that record high
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free cash flow of USD $273 million. We talked about that.
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They've also declared a full year dividend of HK $0.15 per share,
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keeping it at the same level as last year.
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So that suggests they're feeling pretty confident about their financial strength
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and committed to returning value to those shareholders. And those panda bonds they issued.
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How do those fit into their plans going forward? Yeah, that was a pretty big strategic move.
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It lets them tap into that huge capital market in mainland China,
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giving them a new source of funding.
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And importantly, it helps them better align their assets and liabilities,
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since a big chunk of their operations are in China and generate renminbi revenue.
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This reduces their exposure to those currency swings and could potentially lower
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their borrowing costs over time. Smart move.
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What about strategic projects and initiatives? Are they looking at expanding
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into new areas or upgrading their existing properties? Oh, definitely.
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They're all about enhancing their existing portfolio. They've got those themed
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rooms at the island Shangri-La in Hong Kong, new food and beverage concepts like the Ming Pavilion.
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Their dual brand strategy, like with JN Kunming and the upcoming Shangri-La
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Kunming, that aims to appeal to a wider range of travelers.
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The opening of that Ba Hyunhui shopping mall in Fuzhou that shows they're moving
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towards these more integrated hospitality and retail experiences.
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They're also growing through managed contracts like in Shenzhen and Phan Pen.
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And they've got plans to revamp existing properties like the Shangri-La Hangzhou
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and to apply that dual brand concept to the traders and Shangri-La Hangkyo hotels.
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So a lot of balls in the air adapting to the changing market.
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Sounds like a pretty comprehensive approach.
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What's their overall focus as they look ahead? The report really stresses this.
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They're going to keep a tight rein on costs, keep pushing to improve that bottom
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line, and generate strong cash flow.
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And they're being very selective about new projects, making sure those investments
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are going to deliver real value, no more risky bets.
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Let's talk about their overall financial health. The report dives into their
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corporate debt and financial condition a bit. Yeah.
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They've made significant progress in reducing their net borrowings,
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down by a hefty USD $296.3 million to a total of USD $4,421.3 million.
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That's mostly due to that strong cash flow we talked about and some capital
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returns from their associate companies.
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Their gearing ratio, which measures how much debt they're using to finance their
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assets, also decreased from 86.3% to a more manageable 81.3%.
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That's a good sign. Definitely.
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And they've also secured those big bank loan agreements for refinancing about
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USD $1,784 million with a clear preference for renminbi financing.
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They really highlight the benefits of that.
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Diversifying their funding sources, potentially getting lower borrowing costs,
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and creating a better match between their assets and their liabilities in China.
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Just makes good financial sense.
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And you mentioned sustainability-linked in green loans earlier,
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right? Seems like those are becoming more and more common. Absolutely.
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They've got about USD 4.2 billion in those types of loans.
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Basically, some of their borrowing costs are tied to how well they perform on
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environmental and social responsibility targets.
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Good for their image and potentially good for their bottom line if they hit those targets.
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And here's a key point. The report states they have enough cash on hand and
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available credit to cover their refinancing needs for the next two years all
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the way through the end of 2026.
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They also say they've met all the terms of their existing loan agreements.
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Their adjusted total equity is a solid USD $9.1 billion with an indebtedness
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ratio of 71%. It's a pretty solid financial foundation, all things considered.
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Of course, the value of their properties is a big part of that financial picture.
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How do they handle those valuations? And were there any big changes in 2024?
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Their investment properties are valued at fair value, and they review those
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valuations every six months to make sure they're up to date.
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In 2024, they recorded a net gain of USD $74.9 million from those properties,
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so some appreciation in value there.
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But they did have to recognize an impairment loss of USD $51.8 million for three
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hotels in the Maldives and mainland China.
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However, this was partially offset by a reversal of a USD 5.8 million impairment
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loss for a hotel in Japan.
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So it shows that those values can fluctuate depending on market conditions and
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how well individual properties are performing.
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And lastly, the dividend recommendation, always important for investors. Right.
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The board has recommended a final dividend of HK 10 cents per share.
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Add that to the interim dividend paid out earlier. And the total dividend for
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2024 is HK 15 cents per share, same as 2023. That consistent payout,
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that's a signal of stability for those shareholders.
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So to wrap up this deep dive into Shangri-La's 2024 financials,
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it's been a year of ups and downs, right?
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Overall revenue growth, which is good, but profitability took a hit,
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mostly due to that downturn in property development and rising operating costs in their hotels.
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Yeah. But they also saw some wins, like that travel recovery in key regions
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and the strong performance of their investment properties.
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What I think is really interesting to consider for you listening is how these
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regional differences and their financial decisions, particularly that shift
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towards Renminbi financing, how that's all going to play out in the future.
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It raises a big question.
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What do you think are the biggest opportunities and the toughest challenges
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facing Shangri-La as they navigate this global hospitality landscape?
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Maybe digging into that full report yourself will give you some more food for
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thought on how all these pieces fit together. Definitely something to ponder.
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Well, thanks for joining us on this deep dive into Shangri-La Asia's 2024 financial
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results. We'll see you next time.
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Music.