The Pain Continues At CDL Hospitality Trust

CDL Hospitality Trusts (SGX: J85) is a hospitality trust listed on Singapore. As of 31 March 2016, 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 announced its latest earnings for the fisical quarter ending 31 December 2016 on Friday evening.

Just for some background, CDL Hospitality Trusts is structured as a stapled security. This means one stapled security of the trust comprises a pair of a unit of a Real Estate Investment Trust (REIT) and a Business Trust.

Financial highlights

  1. The trust’s gross revenue for the quarter rose by 5.8% to S$44.6 million year on year.
  2. In contrast net property income (NPI) for the quarter dipped by 2.3% to S$33.7 million year on year.
  3. Consequently, income available for distribution (after retention) and distribution per unit (DPU) also dropped 8.5% and 9% respectively. Income available for distribution came in at S$21.9 million while DPU clocked in at 2.22 Singapore cents.
  4. Net asset value (NAV) per unit decreased from S$1.61 to S$1.55 a 3.7% decrease.

The revenue increase during the quarter was due to a contribution from the UK Hotel asset acquired in late 2015 by the Trust. Also there was a S$1 million incremental income from the completed Claymore Connect mall. This was however dampened by lower contributions from Singapore hotels and Maldives resorts to the tune S$2.2 million year on year. Apart from that the Trust was also affected by unfavorable currency movements of the Australian and New Zealand dollar.

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

  31 March 2016 31 March 2015
Aggreate Leverage Ratio 36.7% 32.3%
Interest Cover Ratio 6 times 7.5 times
Average Debt Duration 2.6 years 2.3 years
Hedge/Fixed Rate Borrowing 60% 52%
Weighted Average Funding Cost 2.5% 2.3%
Total Debt S$0.92 billion S$0.78 billion

Source: CDL Hospitality Trusts’ earnings presentations

From the table above it can be seen that the Trust has taken a step back in terms of its Leverage ratio, interest cover ratio and funding costs.

The positives were the increased debt duration and the higher fixed rate borrowings. This is important as it means the Trust has more visibility in knowing how much it has to pay in interest.

Operational highlights

Occupancy rates for the trust’s Singapore properties in for the quarter dropped by 3.8 percentage points to 83.9% year on year. Meanwhile, the average room revenue had also fallen from S$197 to S$191 as new hotel supply pressured rates. These figures are important for the Trust as Singapore-based properties still makes up 67% of CDL Hospitality Trusts’ net property income.

The positives for the quarter were the addition of contribution for the UK hotel – Hilton Cambridge City Centre what was acquired in late 2015 and from the incremental revenue contribution from the completed Claymore Connect mall.

Singapore Tourism Board has forecasted that 2016 visitors numbers should grow by a modest 3% for the full year. In the first two months of the year, visitor arrivals increased 12.3% which is a step in a right direction.

The Trust’s Management commented on the Singapore operations “Looking ahead, while 2016 is expected to see a better events calendar as compared to 2015, the outlook for the hospitality sector in Singapore remains uncertain. The slowing growth in China coupled with the tepid economies in Japan and Europe, and a more modest pace of expansion in the US economy, are likely to dampen global economic outlook. Overall, the slower pace of growth and weak economic sentiment are likely to weigh on attendant demand for hotel rooms in Singapore.

On the supply front in Singapore, industry room inventory will continue to grow by an estimated 3,930 rooms in 2016, further increasing room stock by 6.5%. As such, room rates are likely to remain competitive as new hotels seek to build their base. For the first 27 days of April 2016, RevPAR for the Singapore Hotels increased by 1.0% as compared to the same period last year

As for the other locations, the Trust is confident on the prospects for its Australia, New Zealand, Japan and UK properties as it seems upbeat demand and growth momentum in tourist arrivals. However, the Trust is more cautious on the two resorts it owns in Maldives due to a strong US dollar.

The trust’s annualized distribution yield is 6.3% based on Friday’s closing price of S$1.40. The trust is also valued at 0.9 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 Esjay does not own shares in CDL Hospitality Trust.