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CDL Hospitality Trusts Makes Big Waves in Maldives

CDL Hospitality Trusts

CDL Hospitality Trust (SGX: J85) is making a US$61m acquisition of the Jumeirah Dhevanafushi high-end 5-star resort in the Maldives, subject to regulatory approval from the Ministry of Tourism, Arts and Culture of the Republic of Maldives.

Prior to this acquisition, the real estate investment trust owned 12 hotels and one resort with a total of 4,420 rooms, scattered across Singapore, Australia, New Zealand, and Maldives.

With a total land area of 53,576 square metres (sq m), Jumeirah Dhevanafushi currently consists of 19 beachfront villas and 16 over-water villas that sit on only 9,056 sqm of built-up area. There are plans to add two more beachfront villas in the coming year with the costs borne by the seller of the property.

The resort was opened only on Nov 2011 and has managed to achieve revenue per available room (RevPAR) of US$754 for the first nine months of the year as the Maldives market has one of the highest RevPARs in the world. For comparison, the REIT had reported a portfolio-wide RevPAR of S$191 in its latest third quarter results.

For CDL H-Trust, this acquisition is first and foremost an “accretive” acquisition, as some number crunching shows that the purchase can bump up the REIT’s net property income and distributions on a pro-forma basis (meaning to say the numbers are calculated as if the transaction had already taken place).

In addition, the acquisition would also naturally increase the value of the REIT’s overall portfolio. Here are some of the pro-forma numbers for CDL H-Trust:

  Pre-Acquisition Post-Acquisition Change
Property Value S$2.13b S$2.21b 3.6%
Net Property Income S$101m S$104.4m 3.4%
Distribution per unit 8.9 cents 9.1 cents 2.2%
Total debt S$615m S$695m 13%
Gearing 28.1% 30.6%

Source: CDL Hospitality Trust’s Presentation Slides

One final thing to note about the pro-forma numbers is the higher debt load and the consequential increase in gearing (the total debt to assets ratio). CDL H-Trust intends to buy Jumeirah Dhevanafushi with borrowed money, and though the increase in overall leverage is modest, increases in debt is still something investors should watch.

There are other highlights about the resort in Maldives that the REIT has pointed out.

For instance, there has been a 7.1% annual growth in tourist numbers from 2002 to 2012 for the island nation that’s located in the middle of the Indian Ocean.

Flight connectivity to Maldives has also been improving, with a number of budget as well as full-service airlines having added more routes to the nation this year. There’s more to come, as Tigerair (SGX: J7X) would be launching a new four time weekly Singapore-Maldives flight at the start of 2014.

All these – growth in the tourism-sector in addition to increased connectivity for Maldives -adds up to some pretty strong tail winds in the sails of the Jumeirah Dhevanafushi resort.

The REIT has also managed to retain Jumeirah as the manager of the resort. Jumeirah is a reputable international luxury hotel operator and counts the Burj Al Arab Hotel in Dubai, voted the world’s most luxurious hotel, as one of the properties under its care. On that front, it seems that Jumeirah Dhevanafushi is in good hands.

Finally, the resort carries the potential for the development of additional villas as its built-up area is only a small fraction (17% to be precise) of its entire land area. According to CDL H-Trust, there’s still an estimated 7,017 sqm of space that can be developed for the resort.

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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 Chong Ser Jing doesn’t own shares in any companies mentioned.