The Three Numbers That Support CDL Hospitality Trusts

It can’t be easy to keep a chain of hotels in tip-top condition. But CDL Hospitality Trusts (SGX: J85) does an admirable job and still has room to generate a decent return on shareholder equity.

The stapled group, which comprises CDL Hospitality REIT and CDL Hospitality Business Trust, generated a Return on Equity of 7.8%. That is lower than the RoE for the 30 companies that make up the Straits Times Index (SGX: ^STI), but not by much.

The trust’s respectable RoE can be traced to its exceptionally high Net Income Margin of 73.40%. It implies the owner of Grand Copthorne Waterfront Hotel made S$73.40 of bottom-line profit on every $100 of revenues.

Unsurprisingly, CDLHT is not especially efficient in the use of assets. That is largely due to the vast amount of assets it owns. The Asset Turnover of 0.07 would suggest that it generated revenues of S$7 on every $100 of asset employed.

CDL Hospitality Trusts is not heavily leverage. With Total Liabilities of S$826m and Total Assets of S$2,421, the Leverage Ratio is a modest 1.51.

By deconstructing the Return on Equity for CDL Hospitality Trust, it is easy to how it is supported. Its RoE of 7.8% is the product of a high Net Income Margin of 73.4%; a low Asset Turnover of 0.07 and a modest Leverage Ratio of 1.51.

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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 Director David Kuo doesn’t own shares in any companies mentioned.