Will CDL Hospitality Trust See More Headwinds?

hotelsIn April this year, the Second Minister for Home Affairs and Trade and Industry, S. Iswaran, said the Government had forecast a growth rate of 3% to 4% year-on-year for the number of tourists arriving in Singapore. Spending by visitors tourists is expected to grow at only 4% to6% over the next 10 years.

This contrasts with the record growth rates posted between 2002 and 2012 when visitor arrivals grew at a compounded annual rate of 6.6%. Tourism receipts also grew at 10% per year during the same time.

The muted growth rates forecasted are not surprising. Keen competition from other countries in the region and rising prices in Singapore could deter tourists from visiting our shores.

For those who might be wondering what this could mean for Singapore’s hospitality sector, then CDL Hospitality Trust (SGX: J85), might provide a clue.

In the first quarter of this year, CDLHT saw net property income decline at all its local hotels. Revenue per available room (Revpar) was 7.9% lower year-on-year at $191. The reason was due to lower occupancy at the hotels and decrease in average room rates during the quarter. Distributable income available to unit holders dropped 2.8% as a result.

Looking at the official overall Revpar figures for 2012 and 2013 from Singapore Tourism Board might provide a better picture. From January 2012 to May 2012, average Revpar was $222. For the same period in 2013, the Revpar was at $217. This translates into a decline of around 2.4%. From 2011 to 2012, the year-on-year change was 4.1%. From 2010 to 2011, the annual change was 15%. The annual decline in Revpar from 2012 to 2013 is telling.

Facelift of its shopping mall

Perhaps, CDLHT can offset some of the declines in the hotel take-up rate. It has proposed a $25 million facelift of its only retail asset, Orchard Hotel Shopping Arcade. The asset enhancement initiatives (AEI) include plans to makeover the façade and existing amenities. It will see the mall increase its total net lettable area (NLA) by 10,000 sq. ft. The AEI is expected to start this year and should be completed within a year.

However, the mall accounts for only 3.2% of CDLHT’s portfolio, in terms of valuation. Last year, it contributed only 3% of overall net property income. So, the financial impact of this asset on CDLHT could be minimal.

Foolish Takeaway

A huge supply of new hotel rooms from now to 2015 and lack of major events and attractions this year may impact the hospitality sector as a whole. The stock price of CDLHT is down 22% since mid-April 2013 due to the confluence of events. The Straits Times Index (SGX: ^STI) is down only around 3% during the same period.

The contrarians among us may see this as a good opportunity as the tide could turn one day. For others, they might think the worst is not over yet and that the business could see more headwinds.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.  Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.