CDL Hospitality Trusts Shows Why Geographical Diversification Can Be Important

CDL Hospitality Trusts (SGX: J85) had released its earnings for the first-half of 2016 last week.

The trust’s business did not have the best of times in that period. Despite revenue growing by 7.3% to S$87.1 million, its total distribution had fallen by 4.5% to S$44.0 million.

CDL Hospitality Trusts focuses on the ownership and management of hospitality assets in Singapore, Australia, Japan, New Zealand, the United Kingdom, and Maldives. Singapore is the trust’s most important geographical market, accounting for 70.5% of CDL Hospitality Trust’s total portfolio value of S$2.5 billion.

Singapore had been a tough place to be for the trust in the first-half of 2016.

Visitors to our Garden City in the first five months of 2016 had increased by 13.1% to 6.9 million from 6.1 million a year ago. But, 3,736 hotel rooms were added to the supply in 2015, representing a 6.5% increase from 2014. A further 2,886 rooms are expected to be added to the room supply for the whole of 2016. Singapore had 60,908 hotel rooms in total as of end-2015.

The new supply of rooms played a role in pressuring the performance of CDL Hospitality Trusts’ Singapore properties. All told, net property income from Singapore had fallen by 7.5% year-on-year in the first-half of 2016.

But, not all of the trust’s geographical markets were weak. For instance, in the first-half of 2016, CDL Hospitality Trust’s New Zealand revenue grew by 5.6% when compared to the first-half of 2015. The country had a “robust hospitality market” and that contributed to a “good underlying performance” from the trust’s hotel there.

New Zealand only accounts for 4.6% of CDL Hospitality Trust’s total portfolio value. But, its growth had helped to offset some of the decline seen in Singapore. This is a good example of the benefits that geographical diversification can potentially bring for a company or trust. When one area is not doing well, some others can help pick up some of the slack.

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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 Ong Kai Kiat doesn't own shares in any companies mentioned.