Endeavour Holdings Ltd (EHL) has experienced an 83 per cent decline in its profits for the year ended April 30, 2020—sliding from $38 million to $6.4 million. The company’s core business is in the lease and rental of properties.
EHL’s revenue from contracts with customers fell by 5 per cent as it moved from $93 million to $88.4 million. The notes to the financial statements revealed that the company reported the biggest drop in it’s shopping mall segment. The income in this segment fell from $38.7 million to $33.9 million, which represented a 12.3 per cent decline.
The company’s rental expenses also increased by 4.5 per cent in a climb from $21.7 million to $22.6 million. As a result, EHL’s net rental income of $65.8 million was 7.8 per cent lower than the amount recorded in the comparable period last year ($71.4 million).
However, the company’s dramatic fall in net profit arose due to the line item “fair value adjustment on investment properties,” which recorded a $26.2 million decrease.
In the company’s notes, it revealed that this drop in fair value arose in relation to it’s Price Plaza, Chaguanas property, which was adjusted from $418.6 million to $390.8 million. This represented a 6.6 per cent decline in value.
Nonetheless, this was not a cash reduction, but the fair value loss was reported through the profit and loss statement. EHL’s cash flow from operating activities only fell by 4.2 per cent, moving from $38.8 million to 37.2 million.
The note indicated that the company’s management performed the valuation of the investment properties using the Income Valuation method. The financial report stated: “This method is used to estimate the value of properties which are regarded as investments and moreover, where the basis of arrival at the market price is directly related to the income which the property is producing or capable of producing.”
The notes to the financial statements indicated that Annual Rental Value is determined either from the actual rental income or calculated through the use of comparable rates and relevant expenses, outgoings and estimated vacancies are deducted from the rental income to arrive at a net income position.
As part of the assessment of fair value movements, future rental cash inflow, maintenance costs, capitalisation rates and the COVID-19 pandemic were included in the analysis.
Concerning the pandemic the notes said: “Management has carried out an extensive review and taken into account the impact of COVID-19 to date on the fair value of Investment Properties. With the continued uncertainty and challenges presented by COVID-19 management will continue to monitor further developments and determine what further impact these will have on the portfolio.”