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Sagicor X Fund posts half-year profit amid hotel rebound, market jitters

The Sagicor Group’s real estate and hospitality investment vehicle Sagicor Real Estate X Fund Limited, is reporting improved financial performance for the six months to June, with net profit of $110 million, a turnaround from its more than $47-million loss the previous year.

Amid a healthier hotel business as COVID-19 restrictions and eased fears about business prospects, the increased profitability comes on the back of a 27 per cent growth in revenue growth to a pre-pandemic level of $3.4 billion.

Although the company was weighed down by losses in the April-June period, the wider half-year out-turn has prompted cautious optimism in the company’s leadership ranks regarding the future of the hotel businesses, which still accounts for a substantial portion of Sagicor X Fund’s investment returns.

“Our appetite for investment in the tourism and hospitality sectors is influenced by the evolving circumstances. At this time, we remain open to the tourism and hospitality sectors as an area for investment,” Christopher Zacca, the president and CEO of Sagicor Group Jamaica Limited and former chairman of Sagicor X Fund, said via email to the Financial Gleaner on Thursday.

Sagicor X Fund reported a steep climb in hotel revenue in the second quarter, from $1.1 billion to $1.8 billion, but its expenses and capital losses on financial assets threw the company into red with a pre-tax loss of $9 million, compared to a profit of $422 million in the comparative 2021 period. On a net profit basis, after factoring for taxes and tax credits, respectively, its bottom line bled $71 million, compared to a profit of $500 million the previous year.

The $71 million of losses that was also attributable to shareholders spun from a profit of $155 million, on overall revenue that was flat at $1.6 billion for each period. Comparatively, in the pre-pandemic 2019 year, the company posted a six-month profit of approximately $689 million on $3.4 billion in revenue.

Having exited the hotel business in Jamaica and sold its previous holdings in international hotel chain Playa last year, X Fund’s remaining hospitality investment is the Doubletree Orlando hotel in Florida, United States, which is said to have ended the reporting period at 94 per cent occupancy.

With reference to the company’s half-year performance: “The increase in occupancy levels and hotel bookings resulted in a $1.68 billion, or 90 per cent improvement in hotel revenues over the prior year[to $3.55 billion],” said X Fund’s directors in a statement appended to the financial report. “This outpaced the increase of $1.09 billion, or 76 per cent, in hotel expenses, resulting in an improvement in hotel margins from 23 per cent to 29 per cent.”

The positive half-year performance was also attributed to an increase in the group’s interest-earning assets and a decrease in finance costs. Some of last year’s US$58-million windfall from the sale of the Playa shares was used to retire much of X Fund’s debts, and in January this year US$20 million, formerly held as short-term instruments, was shifted to long-term corporate bond.

Despite the latest quarterly profit boost, earnings before interest, tax, depreciation and amortisation slipped to $840 million from $1.23 billion a year ago.

Sagicor X Fund has been growing its cash resources, which reached $2.8 billion at June this year. The business also reported positive cash flow of $1.33 billion from second-quarter operating activities, significantly more than the $328.49 million it generated in the similar quarter last year.

Its net cash holdings, however, was down by $2 billion to $4.87 billion, as more money was reinvested into higher-yielding assets.

The improved top and bottom lines of the company financials withstood substantial, unrealised capital losses, which company officials said were generated by “market volatilities caused by rising interest rates and high inflation”.

The business booked a capital gain of more than $803 million for the comparative period in 2021.

“The rising interest rate resulted in reduced bond prices and capital losses of $145.87 million. If these instruments are held to maturity or sold after the market rebounds, the group will recover the losses. In addition, the higher interest rate is a contributing factor to the home country’s currency appreciating against its United States counterpart. The group incurred $111.69 million in foreign currency losses on its net foreign currency assets,” Zacca explained.

The upside of higher interest rates, he pointed out, was increased interest income and better net investment income, overall, which amounted to $117.5 million.

The winding up of Jamziv MoBay Jamaica Limited, through which X Fund had held its Playa shares, also helped to wipe almost $6 billion from Sagicor X Fund’s total assets to $25.4 billion, from $31.3 billion at its last audit for year ending December 2021.

“The wind-up of Jamziv resulted in the cancellation of a promissory note issued by the non-controlling interest holder and the removal of the non-controlling interest from the balance sheet,” X Fund directors said.

The note was valued at $5.77 billion.

Zacca said the winding up did not affect shareholders equity, which was fairly steady at $16.5 billion in June, compared to $16.59 billion in December.

The position of Sagicor X Fund’s chairman was taken up by Vinay Walia, managing director of security company Guardsman Group, on August 1, replacing Zacca, who remains a member of the board.

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