CDLHT eyes Australia Japan and NZ for more acquisitions

Singapore

CDL Hospitality Trusts (CDLHT), which posted a 10 per cent drop in second-quarter distribution per stapled security, said it remains well poised for acquisitions.

"The markets we continue to like include Japan; within Australia, we still like Sydney and Melbourne. The New Zealand market is looking very promising," said Vincent Yeo, CEO of M&C Reit Management and M&C Business Trust Management, the managers of CDLHT.

The stapled group owns 14 hotels and two resorts adding up to 4,711 rooms. The two resorts are in Maldives and the hotels comprise six in Singapore, five in Brisbane and Perth, one in Auckland and two in Tokyo. It also owns Claymore Connect, a shopping arcade next to Orchard Hotel.

CDLHT's Singapore hotels posted a 4.4 per cent year-on-year drop in revenue per available room (RevPAR) to S$173 for Q2 ended June 30, 2015. While the average occupancy rate managed to inch up 0.4 percentage point to 86.5 per cent in Q2 from a year earlier, the average room rate slipped 5.2 per cent to S$200 because of price competition from new hotel entrants and the relatively strong Singapore dollar.

Slower global economic growth continued to impact corporate demand, and this was felt more by the group's hotels that had meeting facilities, said Mr Yeo.

So far this month, RevPAR at CDLHT's Singapore hotels has slipped 4.2 per cent y-o-y.

CDLHT's Maldives resorts suffered a 15.4 per cent y-o-y RevPAR drop in Q2. This was the result of a slowdown in business from Chinese and European travellers, aggressive pricing promotions generally among the resorts in Maldives during the traditionally low season, the continued strength of the US dollar (the currency in which room rates in Maldives are stated) against most currencies, including the euro and Russian rouble.

For the group's Australian hotels, rent contribution fell 10.6 per cent y-o-y in Q2 due to the weaker Australian dollar vis-a-vis the Singapore dollar, which is the reporting currency for CDLHT.

Despite the Australian hotels being hit by the country's lacklustre economy and lack of new investments in the mining sector, the mitigating factor is the group's defensive lease structure on the assets which provide a high proportion of fixed rent.

In New Zealand, fixed rent contribution for Q2 from Rendezvous Grand Hotel Auckland fell 6.3 per cent mainly due to the weaker New Zealand currency.

On a brighter note, CDLHT's two Japan hotels acquired last December achieved 29.1 per cent y-o-y RevPAR growth in Q2 on the back of the country's phenomenal jump in visitor arrivals.

While the Japanese hotels' contribution was included in CDLHT's Q2 and H1 revenue and net property income figures, it was excluded from the distributable income, as income from these two properties will be available for distribution only in Q4 2015 once the financial results for the first fiscal year ending Sept 30, 2015 have been audited.

Gross revenue rose 3 per cent y-o-y to S$39.0 million in Q2 - due chiefly to S$2.3 million contribution from the recently acquired Japan hotels, and a revenue increase at the Maldives resorts which was partly buoyed by a strong US dollar against the Singapore dollar. However, this was partly offset by reduced contributions from the Singapore, Australia and New Zealand hotels. Net property income inched up 0.9 per cent to S$31.62 million.

Net finance costs rose 50.6 per cent or S$2.19 million to S$6.54 million in Q2 - mainly a result of higher interest expense and an exchange loss over the corresponding period last year. The higher interest cost was incurred due to increased borrowings to finance the acquisition of the Japan hotels and asset enhancement works at Claymore Connect, as well as the conversion of some of the US and Singapore dollar borrowings into longer tenor five-year fixed rate term loans. There was also a general rise in interest rates on floating rate borrowings. As at end-June, 61 per cent of CDLHT's borrowings were on fixed rates, up from a 52 per cent share three months earlier.

Income available for distribution - after deducting income retained for working capital - fell 9.2 per cent to S$22.14 million in Q2. Distribution per stapled security (DPSS) declined 10 per cent to 2.25 cents in Q2 2015 from 2.5 cents in Q2 2014, translating to an annualised distribution yield of 5.53 per cent based on the counter's closing price of S$1.63 on Wednesday.

Net asset value per stapled security was S$1.6185 as at end-June, down from S$1.6454 at end-Dec 2014.

For the first half, CDLHT's gross revenue fell 0.5 per cent y-o-y to S$81.21 million. Net property income eased 2.8 per cent to S$66.12 million. Income available for distribution, after deducting income retained for working capital, retreated 10.1 per cent to S$46.11 million.

CDLHT will distribute 4.69 cents per stapled security for Jan 1-June 30 2015, down from 5.25 cents in the same period last year.The group's gearing stood at 32 per cent at end-June 2015, providing debt headroom of S$322 million assuming gearing rises to 40 per cent. This positions the group well for acquistions.

Singapore's hotel market will continue to face competitive conditions, the group noted, with 4,405 rooms opening this year. From 2014-2017, new room supply is expected to increase at a compounded annual growth rate of 5.9 per cent.