Zhejiang New Century Hotel Management recently provided its business update in relation to the recent outbreak of novel coronavirus.
The Board has notified the Lessor that since the outbreak of the novel coronavirus pneumonia epidemic (the “Epidemic”), the provinces and municipalities in the PRC in which the Initial Hotel Properties are situated have activated level I (the highest-level response to major public health emergencies) and adopted various strict measures to curb the spread of the Epidemic. As part of the efforts to facilitate the prevention and containment of the Epidemic and ensure the health and safety of hotel customers and employees (the “Containment Efforts”), the Group has substantively suspended operations (as interpreted under the Master Hotel Lease and Management Agreement) of the Initial Hotel Properties since 25 January 2020. As a result of the Epidemic and the substantive suspension of operations of the Initial Hotel Properties, the force majeure clauses under the Master Hotel Lease and Management Agreement and the individual underlying hotel lease and management agreements have been triggered, and accordingly the annual base rent for the Initial Hotel Properties will be adjusted proportionately for the duration of the period of suspension.
On 2 March 2020, all the provinces and municipalities in the PRC in which the Initial Hotel Properties are situated have lowered the response level to level II. Consequently, operations at the Initial Hotel Properties have resumed on 3 March 2020. Operations at the Initial Hotel Properties were suspended for 38 days (the “Suspension Period”), which resulted in a downward adjustment of the base rent for the Initial Hotel Properties for the year ending 31 December 2020 by RMB20.77 million in aggregate from RMB200.00 million to RMB179.23 million.
In addition, given that operations at the Initial Hotel Properties were substantively suspended during the Suspension Period, the Group also did not pay the Lessor any variable Individual Rents (which is calculated as 20% of the relevant Initial Hotel Property’s total monthly operating revenue plus 34% of the relevant Initial Hotel Property’s gross operating profit for the relevant month (or in the event of a gross operating loss, deduction of 34% of the relevant Initial Hotel Property’s gross operating loss for the relevant month), which shall in any event not fall below zero) for the corresponding period.
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