Latest Earnings From CDL Hospitality Trusts: What Investors Should Know

CDL Hospitality Trusts (SGX: J85) released its second-quarter earnings last Friday. The reporting period is for the three months ended 30 June 2016.

As a brief introduction, CDL Hospitality Trusts is a stapled trust in Singapore with a focus on hospitality assets. As of 30 June 2016, the trust owns a total of 15 hotels, two resorts, and a retail mall in Singapore, Australia, Japan, New Zealand, the United Kingdom, and Maldives. It has over 4,900 rooms in its portfolio.

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

Financial highlights

The following are some of the latest financial figures from CDL Hospitality Trusts:

  • Gross revenue for the quarter grew by 8.9% from S$39 million in the second-quarter of 2015 to S$42.4 million.
  • But, the trust’s net property income (NPI) had dipped by 0.9% to S$31.3 million.
  • Consequently, income available for distribution (after retention) had slipped by 0.3% year-on-year to S$22.1 million. The REIT’s distribution per stapled security (DPS) declined by 0.9% to 2.23 Singapore cents.
  • The trust ended the second-quarter of 2016 with a net asset value (NAV) per unit of S$1.573, down 3% from the S$1.623 seen a year ago.

CDL Hospitality Trusts’ revenue had increased during the quarter mainly due to revenue contribution from a UK hotel acquired in late 2015. This helped offset (1) lower contributions from the trust’s hotels in Singapore and resorts in Maldives and (2) lower revenue from the properties in Australia and New Zealand due to unfavourable currency swings despite the presence of fixed rents.

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

CDL Hospitality Trusts debt profile
Source: CDL Hospitality Trusts’ earnings presentation

From the table above, it can be seen that the trust has taken a step back in terms of its gearing ratio and interest cover ratio. But there were still positives, such as the increase in the debt-to-maturity and the lower funding cost.

Operational highlights

Occupancy rates for the trust’s Singapore properties in the reporting quarter declined by three percentage points from the second-quarter of 2015 to 83.5%. Meanwhile, the revenue per available room (RevPAR) also fell from S$173 to S$157 as new hotel supply and softening corporate demand pressured rates.

The Maldives market faced challenging conditions in the second-quarter of 2016 as RevPAR declined sharply by 26.6% year-on-year.

Riding on the crest of growth in visitor arrivals to Japan (inbound arrivals to Japan in the first six months of 2016 had jumped by 28% year-on-year), the trust’s hotels in the country posted RevPAR growth of 6.4% in the reporting quarter.

Lastly, Hilton Cambridge City Centre in the UK recorded RevPAR growth of 18.9% year-on-year in the second-quarter of 2016. The hotel benefitted from increased corporate business after a refurbishment (done in April 2015) and rebranding (done in late 2015).

The road ahead

Vincent Yeo, the chief executive of the trust’s manager, shared some comments on CDL Hospitality Trusts’ outlook in the earnings release:

“The economic environment has continued to deteriorate and the ongoing uncertainty surrounding Brexit will continue to weigh on business confidence.

Although it was encouraging to see stronger visitor arrival numbers to Singapore, it was more likely to have been a growth in leisure travel as corporate activity contraction was evident. The performance of our Singapore Hotels has also been significantly affected by the absence of the South East Asian Games this year as well as our ongoing asset enhancement initiatives at Grand Copthorne Waterfront Hotel and M Hotel, which are slated for completion in 2016.

Notwithstanding, the strong performance of our Japan Hotels as well as our UK Hotel, have helped to provide the benefits of income diversification while other markets in our portfolio are going through unfavourable cycles.”

For the period from January to May 2016, international visitor arrivals to Singapore grew by 13.3% year-on-year to 6.9 million. But, total visitor days only increased by 4.8% year-on-year to 23.6 million as the average length of stay has declined.

The trust also had some discussion on the issue of room supply in Singapore in the earnings release:

“On the supply front in Singapore, industry room inventory will continue to grow by an estimated 2,866 rooms in 2016, further increasing room stock by 4.7%. As such, room rates are likely to remain competitive as new hotels seek to build their base business.”

As for the other locations, the trust appears upbeat on the prospects for its Japan and UK properties because of growth momentum in tourist arrivals. But, the trust is more cautious on the two resorts it owns in Maldives due to a strong US dollar. As for the properties in Australia and New Zealand, CDL Hospitality Trusts sees some headwinds but thinks that they can be mitigated due to the properties’ “defensive” lease structures.

The trust’s annualized distribution yield is 6.1% based on last Friday’s closing price of S$1.47 for its stapled securities. The trust is also valued at 0.93 times its latest 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 any companies mentioned.