The Peninsula Manila Is Not Closing Down
As hotels close left and right, rumors are flying about the fate of some of the country’s top-tier hotels. The Peninsula Manila is the latest luxury hotel to be put in the spotlight after a story by The Philippine Star claimed that “The Pen is also headed for the wrecker’s ball.”
The paper claims that the Hongkong and Shanghai Hotels Ltd., the operator of Peninsula hotels around the world, had “written off its investments in the local luxury hotel ahead of the 2026 expiry of the property lease with the Ayala Land.”
The land The Peninsula Manila sits on is owned by Ayala Land, which the hotel pays an annual lease. Ayala Land’s chairman is Fernando Zobel, who also sits on the board of directors at The Peninsula Manila.
In response to the article, The Peninsula Manila released an official statement, putting down any rumors that the hotel is closing down. Read the statement below:
“On Friday 25 September, The Philippine Star published an incorrect and completely misleading headline and story claiming that The Hongkong and Shanghai Hotels was 'writing off' The Peninsula Manila. The newspaper has misunderstood an accounting term of 'writing down' the value of the hotel which was published in our group annual report. We have asked the publication for a correction. HSH remains committed to The Philippines where we have been operating the hotel since 1976 and the group has no intention of 'writing off' The Peninsula Manila.”
‘Written Down’ vs. ‘Written Off’
In a six-month interim results disclosure, the HK operator reported that The Peninsula Manila faced the highest percentage of losses in the company’s hotel division. Revenues at The Peninsula Manila dropped by 71 percent, just a few percentage points higher than The Peninsula Paris and The Peninsula Chicago.
“The Peninsula Manila is subject to a land lease which is due to expire in 2026. In view of the relatively short remaining lease term and the uncertain outlook of the local tourism market, a review has been conducted by management and an independent third-party valuer. Since the hotel’s appraised value was lower than its book value as at 30 June 2020, the directors considered it appropriate to write down the hotel’s value resulting in an impairment provision of HK$93 million,” said the Hongkong and Shanghai Hotels Ltd.
It’s important to note that “written off” is different from “written down” or “to write down.” The accounting term “to write down” or “a write-down” refers to when the book value of an asset is reduced and is rewritten to reflect its current market value. A “write-down” becomes a “write-off” when its value is rendered useless and is written off the balance sheet. In the case of The Peninsula Manila, it could imply that it’s unlikely that the parent company would see a return of investment.
In short, The Peninsula Manila’s market value has been reduced due to the pandemic, but it’s not been rendered obsolete enough to be written off the books forever.