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Latest Earnings From CDL Hospitality Trusts: Uncertain Times Ahead

CDL Hospitality Trusts (SGX: J85) is one of the few hospitality trusts listed in Singapore. As of 31 December 2015, the trust owns a total of 15 hotels and two resorts in Singapore, Australia, Japan, New Zealand, the United Kingdom (UK) and Maldives. The trust had announced its latest earnings (for the quarter and year ended 31 December 2015) yesterday.

CDL Hospitality Trusts is structured as a stapled security – one stapled security of the trust comprises a pair of a unit of a real estate investment trust (REIT) and a business trust. You can read about the differences between the two in here.

With that, let’s dive into the trust’s financial results.

Financial highlights

The trust’s annual gross revenue in 2015 had nudged up by 3.4% to S$172 million. For the fourth-quarter, gross revenue had displayed strong growth of 11.1% to come in at S$50.1 million.

The stronger top-line, however, did not translate into higher net property income (NPI). For the year, NPI had declined by 2.5% to S$137 million; for the quarter, it had dipped by 2.2% to S$37.8 million.

The trust’s distributable income did worse for both the year and the reporting quarter. In the former, distributable income slipped by 7.8% to S$99.2 million; in the latter, distributable income had come in at S$29.8 million, down by 3.0% from a year ago.

Consequently, distribution per stapled security (DPS) had (a) decreased by 8.4% to 10.06 cents for the year, and (b) dipped by 3.8% to 3.01 cents.

Contributing to the lower distributions were an increase in net finance costs. During the year, net finance costs had jumped by 32% to S$21.7 million on the back of an increase in interest rates and higher borrowings. The change in exchange rates for the Australian and New Zealand dollar against the Singapore dollar was also not in favour of CDL Hospitality Trusts. For the reporting quarter, net finance costs had spiked by 99% from a year ago to S$6.6 million.

On the balance sheet, here are some important figures to look out for:

CDL Hospitality Trusts' balance sheet
Source: CDL Hospitality Trusts’ earnings presentations

 

CDL Hospitality Trusts ended 2015 with a net asset value per unit of S$1.59, down by 3.3% a year ago.

Operational highlights

The trust’s higher gross revenue in the quarter and year were both largely due to recent acquisitions made in Japan (the MyStays hotel franchise acquired on December 2014) and the United Kingdom (Hilton Cambridge City Centre acquired on October 2015).

These helped to offset a poor performance from the trust’s assets in Singapore and Maldives. In particular, the Japanese acquisition seems to be a strategic move as it may, in my opinion, perform well into the 2020 Tokyo Olympics.

Singapore-based properties still makes up 66% of CDL Hospitality Trusts’ net property income in 2015, so investors would do well to keep a close eye on the tourism and economic conditions here.

Occupancy rates for the trust’s Singapore properties in 2015 had dropped by 1.4 percentage points to 87.7%. Meanwhile, the average room revenue had also fallen from S$210 to S$199 as new hotel supply and slower growth in tourist arrivals (just a 0.4% increase in visitors to Singapore in the first 11 months of 2015) pressured rates.

In the earnings release, the trust commented that there is an estimated 3,930 new rooms to be released in the market in 2016, equivalent to a 6.4% growth in supply. Investors should take note that CDL Hospitality Trusts sees the outlook for Singapore’s hospitality sector as “uncertain” despite a better events calendar in the country in 2016 as compared to 2015.

The trust’s trailing distribution yield is at 7.8% based on yesterday’s closing price of S$1.285. The trust is also valued at 0.8 times its net asset value at that price.

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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, Wilson Ong, doesn’t own shares in any companies mentioned.