CITY DEVELOPMENTS LIMITED ANNUAL REPORT 2021 FINANCIALS 154 155 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2021 YEAR ENDED 31 DECEMBER 2021 4 PROPERTY, PLANT AND EQUIPMENT (CONT’D) Leasehold land and buildings Furniture, fittings, plant and equipment and improvements Total $’000 $’000 $’000 Group Balance at 1 January 2021 296,007 4,805 300,812 Depreciation charge for the year (21,204) (1,349) (22,553) Additions to right-of-use assets 27,139 480 27,619 Reversal of impairment loss 664 – 664 Disposal/Written off (2,130) (4) (2,134) Translation differences on consolidation 5,764 71 5,835 Balance at 31 December 2021 306,240 4,003 310,243 Buildings $’000 Company Balance at 1 January 2020 26,161 Depreciation charge for the year (6,132) Balance at 31 December 2020 20,029 Balance at 1 January 2021 20,029 Depreciation charge for the year (6,267) Additions to right-of-use assets 1,942 Balance at 31 December 2021 15,704 (a) Included in property, plant and equipment are certain hotel properties of the Group with carrying amount totalling $584,019,000 (2020: $518,149,000) which are mortgaged to certain financial institutions to secure credit facilities (refer to notes 22 and 23 for more details of the facilities). (b) During the year, the Group transferred two hotel properties located in Australia held by the Group’s non whollyowned subsidiary, CDL Hospitality Trusts (CDLHT), from investment properties to property, plant and equipment, when CDLHT became both the owner and operator of the properties. 4 PROPERTY, PLANT AND EQUIPMENT (CONT’D) (c) The Group undertook its annual review of the carrying amounts of hotels and property assets for indicators of impairment. Where indicators of impairment were identified, the recoverable amounts were estimated based on internal or external valuations undertaken by the Group. The cash generating units (CGU) are individual hotels. The recoverable amounts of the individual hotels, being the higher of the fair value less costs to sell and the value-in-use, were predominantly determined using the fair value less costs to sell approach and were estimated using the discounted cash flow and income capitalisation methods (2020: discounted cash flow method). Under these methodologies, the fair value measurement reflects current market expectations about an efficient third party operator’s future cash flows. The discounted cash flows method involves estimating each hotel’s future cash flows and discounting the cash flows with an internal rate of return to arrive at the market value, taking into consideration the assumptions in respect of revenue growth (principally factoring in room rate and occupancy growth) and major expense items for each hotel. The future cash flows are based on assumptions about competitive growth rates for hotels in that area, as well as the internal business plan for the hotel in the relevant market. These plans and forecasts include management’s most recent view of trading prospects for the hotel in the relevant market. The income capitalisation method capitalises an income stream into a present value using revenue multipliers or single-year capitalisation rates. Where appropriate, the Group sought guidance on the fair values of the hotels from independent external valuers with appropriate professional qualifications and recent experience in the location and category of the properties being valued. In relying on the valuation reports, the Group has exercised its judgement and is satisfied that the valuation method and estimates are reflective of current market conditions. The valuation reports obtained from the external valuers of certain hotels have highlighted that the COVID-19 pandemic gave rise to an unprecedented set of circumstances on which to base a judgement. Consequently, less certainty and a higher degree of caution should be attached to these valuations than would normally be the case. Values may change more rapidly and significantly than during standard market conditions. Due to the uncertainties that the pandemic may have on the real estate market, the external valuers have also recommended to keep the valuation of these properties under frequent review. In 2021, the Group recognised a net reversal of impairment loss of $95,375,000 on its hotel properties, comprising reversal of impairment losses of $96,317,000 on five hotels in United States of America (US), two hotels in Europe, and four hotels in Asia, net of impairment losses made of $942,000 in respect of a club and a restaurant in Asia. The impairment losses reversed during the year mainly arose from the improved trading performances of certain hotel properties, following the progressive recovery of the hospitality sector in the countries in which these hotels are located. The estimated total recoverable amounts of the properties on which impairment losses were reversed or impaired during the year were $743,871,000 as at 31 December 2021. In 2020, the Group recognised a net impairment loss of $87,517,000 on its hotel properties, comprising impairment losses of $111,330,000 on eight hotels in United States of America (US), four hotels in Europe, and two hotels in Asia, net of impairment losses reversed of $23,813,000 in respect of two hotels in US, five hotels in Europe, and a hotel in Asia. The estimated total recoverable amounts of the properties on which impairment losses were recognised during the year were $1,041,634,000 as at 31 December 2020. The impairment losses were a result of the challenging operating performance of these hotels and the subdued outlook for these hotels as a result of the COVID-19 pandemic. The impairment losses reversed during the year mainly arose from the improved trading performances of certain hotel properties since the last external valuations performed. The estimated total recoverable amounts of the hotel properties on which impairment losses were reversed during the year were $365,413,000 as at 31 December 2020. The fair value measurement was categorised as a Level 3 fair value based on the inputs to the valuation technique used. Impairment losses recognised or reversed were included in “other operating expenses” in the consolidated statement of profit or loss and the hotel operations segment.
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