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Latest Earnings from CDL Hospitality Trusts: Distribution Growth Seen

CDL Hospitality Trusts (SGX: J85) released its fiscal third-quarter earnings (for the three months ended 30 September 2016) last Friday.

As a quick background, CDL Hospitality Trusts is a stapled trust that consists of a real estate investment trust and business trust. It has a focus on hospitality assets and currently owns a total of 15 hotels, two resorts, and a retail mall. These properties have 4,911 rooms in all and are spread over Singapore, Australia, Japan, New Zealand, the United Kingdom (UK) and Maldives.

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

Financial highlights

  • The trust’s gross revenue for the reporting quarter rose by 10.5% to S$45.4 million.
  • Net property income followed suit (NPI), increasing by 5.3% to S$34.8 million.
  • Income available for distribution (after retention) and the distribution per stapled security (DPS) moved up by 3.8% and 3.4%, respectively, to $24.2 million and 2.44 cents.
  • The trust’s net asset value (NAV) per stapled security decreased by 2% year-on-year from S$1.59 to S$1.56.

CDL Hospitality Trust’s revenue increase came from new contributions from an October 2015 acquisition of a hotel in the UK that offset a weaker performance from properties in Singapore and Maldives.

On the REIT’s debt profit, here are some important figures to look out for:

cdl-hospitality-trusts-balance-sheet
Source: CDL Hospitality Trusts’ earnings presentations

From the table above it can be seen that the trust’s gearing and total debt has remained largely unchanged while the average debt duration has stepped up to 3.2 years. But, the internet cover ratio had declined to 6 times.

CDL Hospitality Trusts has no debt coming due in 2017 while S$322 million worth of borrowings will mature in 2018. Investors may want to watch the trust’s progress in refinancing its borrowings.

Operational highlights and outlook on various markets

Occupancy rates for the trust’s Singapore properties for the reporting quarter had increased marginally to 90.7% from the 90.2% seen a year ago. But, the revenue per available room (RevPAR) fell 7.5% from S$201 to S$186 as new hotel supply and softening demand from the corporate sector pressured rates.

In Maldives, the hospitality market continued to face headwinds due to the relative strength of the US dollar against the currencies of its major source markets. China, which is the top source market into Maldives, registered an 11.5% year-on-year decline in arrivals for the first eight months of 2016. As a result, RevPAR in the trust’s Maldives properties’ declined by 28.8% year-on-year.

CDL Hospitality Trusts commented in its latest earnings release that the outlook for Maldives remains challenging in the near term.

In Australia, hotel performance is expected to stay subdued due to an anemic natural resource sector and increase in new hotel room supply in Perth and Brisbane. But, the trust thinks that these should be mitigated by the defensive lease structures it has there.

As for New Zealand, the tourist sector remains buoyant with arrivals up 11.8%. This led to strong RevPAR growth of 9.5% in the reporting quarter.

Moving to Japan, visitor arrivals for the first nine months of 2016 recorded a year-on-year increase of 24.1%. But, the continued strength of the yen has moderated the growth in inbound arrivals and adverse weather conditions experienced during the quarter also dampened travel from the domestic market. Then, there was also new hotel room supply that came online.

Consequently, CDL Hospitality Trusts posted a combined RevPAR drop of 6.6% in the third quarter.

Lastly, the trust’s UK property – Hilton Cambridge City Centre – recorded a 10.2% increase in r RevPAR compared to a year ago. The property benefitted from strong corporate travel due to refurbishments and a recent rebranding. It’s worthwhile noting that the hotel has “not seen any discernable impact to its business” post-Brexit.

Vincent Yeo, the chief executive of CDL Hospitality Trusts’ manager, shared a few thoughts in the earnings release on the trust’s future:

“The trading environment for Singapore hotels is likely to remain competitive till next year given the subdued economic environment leading to softer corporate demand. Nevertheless, we are encouraged by the continued growth in visitor arrivals which have supported the healthy occupancy levels in the market.

Overall, our geographically diversified portfolio has provided the benefits of income diversification despite the soft trading conditions in our core Singapore market. Our performance in third quarter was lifted up by inorganic contribution from Hilton Cambridge City Centre as well as improved performance from Grand Millennium Auckland.”

CDL Hospitality Trusts’ securities closed at a price of S$1.32 each last Friday, implying a price to book ratio of 0.84.

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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.