CDL Hospitality Trusts’ Latest Earnings: Reality Bites as Distributions Fall 11.3%

CDL Hospitality Trusts (SGX: J85) released its first quarter earnings report yesterday (note: 29 April 2015). The reporting period was from 1 Jan 2015 to 31 March 2014.

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.

As its name implies, the stapled security is primarily in the business of hospitality and hotels. It currently has 16 properties under its portfolio – including 14 hotels and two resorts. 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.

You can catch up with CDL Hospitality here and here. Also, catch up with the previous earnings report here.

Financial Highlights

Here’s a rundown on the financial figures:

  1. Gross revenue fell to $42.2 million in the latest quarter, down 3.5% from the quarter a year ago.
  2. Consequently, net property income (NPI) for the quarter also fell by 6.1%. NPI for the reporting quarter came in at $34.5 million, compared to $36.7 million for the same quarter a year ago.
  3. Distribution per stapled security (DPS) for the quarter will be 2.44 cents, a sizable 11.3% drop from 2.75 cents in the first quarter last year.
  4. The total property portfolio was valued at a $2.4 billion, with a net asset value per unit of $1.615.

Foolish investors might want to keep up an eye with the stapled securities’ debt profile. The debt profile may provide clues on how the trust is funded, and its sensitivity to the interest rate environment. This is summarised below.

Gearing Ratio 32.30%
Interest Cover Ratio 7.5 times
Weighted Average Term to Maturity 2.3 years
Weighted Average Cost of Debt 2.70%
Fixed Rate Borrowings 61%

Source: CDL Hospitality’s earnings presentation

For the reporting quarter, CDL Hospitality displayed a slightly weaker debt profile compared to a year ago. The weighted average cost of debt inched up to 2.7% and the interest cover ratio fell to 7.5 times. For comparison — at the end of last year, the weighted average cost of debt was 2.3% and interest coverage ratio was 8.6.

Of the S$786 million in debt outstanding, S$321 million becomes due in 2015.

That said, CDL Hospitality has un-utilised debt facilities which exceed $1 billion in total so refinancing should be available. As always, the progress in refinancing of debt is where Foolish investors should keep a watchful eye.

Operational Highlights

The business of CDL Hospitality can be affected by tourist arrivals, and the demand-supply conditions in the countries that it operates in. On this topic, the management cited the modest 3% growth expected in Singapore tourist arrivals in 2015, and the estimated 2,886 new hotel room supply expected to come online.

Taken together, a competitive environment is expected to persist for 2015.

And, reality may have already bitten into its results. Gross rental in Singapore suffered the most, dropping 12.8% year on year – mainly due to a 9.6% drop in the average daily room rate.  For the first 28 days of April 2015, revenue per available room has fallen 10.1% compared to the same period last year.

Singapore made up 65.5% of the portfolio’s gross revenue in the reporting quarter so Foolish investors would do well to keep a close eye on developments.

Australia’s contribution to gross revenue also fell 6% year on year. While there was a protective element in the fixed rental agreements, the contribution fell due to the weakened Australian dollar.

Summarizing the gloomy quarter, Chief Executive Officer Vincent Yeo said:

“The performance of the Singapore Hotels in the first quarter was dampened by the absence of the biennial Singapore Airshow this year as well as an uncertain economic environment. Our recent acquisition of the two Japan Hotels has helped to provide the benefits of income diversification when other markets in our portfolio are going through unfavourable cycles.”

Foolish summary

CDL Hospitality last traded at $1.72 yesterday. This translates to a historical price-to-book ratio of 1.07.

With the projected DPS payout of 10.67 Singapore cents on a trailing twelve months basis, this would yield 6.2% on Wednesday’s share price. Foolish investors should be aware that the distribution rate of 6.2% may not hold if the DPS continues falling.

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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.