Can the Dividend Growth at CDL Hospitality Continue? Part 1

CDL Hospitality Trusts  (SGX: J85) has outperformed the market over the past six years.

The stapled trust (more on a stapled trust will be given below) has seen the price of its units record gains of about 132% from 1 January 2009 to the closing price last Friday. By comparison, the capital gains of the SPDR STI ETF (SGX: ES3), a proxy for the Straits Times Index (SGX: ^STI), was just 79.3% for the same duration.

Over the past six plus years between 2009 and 2014, CDL Hospitality Trusts has also paid out steady distributions totaling more than 57 cents per share.

Financial year Distribution per stapled security
2009 8.57
2010 10.20
2011 11.05
2012 11.32
2013 10.97
First half of 2014 5.25

Source: CDL Hospitality Trust’s earnings report

So, while the returns from CDL Hospitality Trusts has been comforting, as Foolish investors, we should look behind the curtains to understand how sustainable these distributions are, and how they might grow.

A closer look

To get a sense of the resilience of the trust’s property portfolio, we can look at the breakdown of the trust’s gross revenue by its properties.

But before I start, it’s good to point out that CDL Hospitality Trusts is structured as a stapled security – one stapled security of the trust comprises a pair of a real estate investment trust (REIT) and a business trust. You can read about the differences between the two here.

Being a shareholder of a REIT gives you partial ownership to all the real estate that it owns. As per the Monetary Authority of Singapore (MAS), REITs are mandated to distribute at least 90% of its profits as dividends to enjoy tax transparency. I also wrote about a few pointers for picking REITs here.

Back to CDL Hospitality Trusts, it is primarily in the business of owning and running hotels and currently has 14 properties under its portfolio. The properties are located in Singapore, Australia, New Zealand and the beautiful Maldives. At the local front, the trust owns recognizable hotels such as Orchard Hotel, Grand Copthorne Waterfront Hotel, Novotel Singapore Clarke Quay, and M hotel.

CDL - 1

Source: CDL Hospitality Trust’s earnings report

Overall gross revenue for CDL Hospitality Trusts has expanded by 46% over the five financial years examined above (the trust’s financial year coincides with the calendar year). For 2013, hotels in Singapore made up close to 79% of total revenue for the trust, making it by far the largest revenue contributor.

By virtue of their relative size, the properties in Singapore also contributed half of the revenue growth for the period above. The other major sales growth contributor would be the trust’s acquisition of hotels in Australia and the Maldives.

Foolish summary

As lifelong students of Foolish long term investing, it pays to look under the hood to understand whether a rise in the REIT’s price is supported by the quality of growth that we are looking for.

The exercise above is to look at CDL Hospitality Trusts’ sales alone. As a next step, we should observe if the top-line growth trickles down to the bottom-line in order to sustain those distributions and price growth.

But, that’s for the next article.

As of 9 January 2015’s closing price of $1.76, CDL Hospitality Trusts is trading at a price-to-book ratio of around 1.1, and has a dividend yield of around 6.1%.

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.