Would Warren Buffett Buy CDL Hospitality Trust?

Warren Buffett’s investing philosophy is not too difficult to understand. He focusses on the yield on an asset over the lifetime of the asset.

With that in mind, what would the Sage of Omaha make of CDL Hospitality Trust (SGX: J85)?

CDL Hospitality Trust invests primarily in hotels. These include six hotels in Singapore and five in Australia. It also owns the recently-refurbished shopping mall, Claymore Connect, which is adjacent to Orchard Hotel.

Since its debut on the Singapore stock market in 2006, CDL Hospitality Trust has generated cash. On average, it produces around S$124 million in cash a year. This has been rising steadily, except for last year when it fell back slightly.

Buffett also likes businesses that have a high margin. It could be sign that the company has pricing power. On average, CDL Hospitality Trust’s margins are quite high. But they can also be lumpy, which is not ideal.

Efficiency is another of Buffett’s criteria. A good measure of efficiency could be the Asset Turnover. In the case of CDL Hospitality Trust, it has only generated around $7 of revenue for every $100 of asset that it owns. Whilst that is not especially high, it is also understandable. The Trust owns a lot of assets.

Leverage, which could be a source of potential risk, is not a massive problem for CDL Hospitality Trust. It has Total Assets of S$2.5 billion and Total Liabilities of S$975 million. That equates to a Leverage Ratio of 1.6, which is below the market average.

On balance, CDL Hospitality Trust has many of the attributes that would be attractive to Buffett. It could be one that he might put on his watch list, especially given that the shares are about 10% below their book value.

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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 Director David Kuo doesn’t own shares in any companies mentioned.