CDL Hospitality Trusts Has A Yield Of 7.5%: 3 Things Investors Should Know About Its Business

CDL Hospitality Trusts (SGX: J85) is a stapled trust that consists of a real estate investment trust and business trust.

It should be obvious that the trust has a focus on hospitality-related assets. As of 30 September 2016, its portfolio consists of 15 hotels, two resorts, and a retail mall. These properties have 4,911 rooms in total and are spread over Singapore, Australia, Japan, New Zealand, the United Kingdom (UK) and Maldives.

At its current price, the trust has a distribution yield of 7.5%, which is higher than the market average. This prompted me to take a deeper look at the trust’s business.

Here are three things I found that could be of interest to investors:

1. Performance in the first nine months of 2016

In the first nine months of 2016, CDL Hospitality Trusts saw its gross revenue grow by 8.4% year-on-year to S$132.5 million with the growth driven partly by acquisitions of assets in the UK. But, its net property income only managed to inch up by 0.7% to S$99.87 million.

It gets worse as we move down the income statement – the trust’s distribution per stapled security actually dipped by 2.3% to 6.89 cents.

2. Sources of income

When a company or a trust depends on one economic sector as its source of income, it has to contend with concentration risk. This is the case with CDL Hospitality Trusts since its income is mostly derived from hospitality-related properties.

But, the trust has some form of diversification – it is geographically diversified. As mentioned earlier, CDL Hospitality Trusts has assets in six countries. That being said, 70% of its asset value is located in Singapore.

3. Performance of properties in Singapore in the first nine months of 2016

The occupancy rate, average room rate (ARR), and revenue per available room (RevPAR) are three important metrics to observe for a hospitality property since the numbers are a gauge of market demand for the property.

Here’s a table showing how the occupancy rate, ARR, and RevPAR for CDL Hospitality Trusts’ Singapore portfolio have changed compared to a year ago:

Source: CDL Hospitality Trusts’ 2016 third quarter earnings presentation.

We can see that in the first nine months of the year, all three metrics have fallen. CDL Hospitality Trusts attributed the performance to a more competitive trading environment and the outbreak of the Zika virus in Singapore earlier this year.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.