CDL H-Trust – BT

CDLHT’s Q3 distribution per security up 9.1%

Distribution per security at 2.77 cents; group projects mixed outlook for the sector

CDL Hospitality Trusts, which posted a 9.1 per cent year-on- year increase in distribution per stapled security for the third quarter ended Sept 30, 2011, yesterday pointed to some headwinds for the Singapore hotel market ahead.

First, the 5.6 per cent projected increase in net hotel rooms inventory in Singapore next year is expected to contribute to a more competitive environment. On the demand side, the outcome of the European debt crisis and the health of the US economy may have an impact on Asian economies which may affect visitor arrivals and the hospitality sector, the stapled group said. ‘There are indications in the market that companies are becoming more cautious about travel budgets in view of the economic uncertainty,’ CDLHT said.

On a more upbeat note, it said that the Singapore hospitality sector is expected to continue to benefit from the addition of new leisure attractions, including the two recently launched US night clubs at Marina Bay Sands and the upcoming opening of the Transformers ride at Universal Studios Singapore.

CDLHT posted distribution per stapled security of 2.77 cents for Q3 2011, up 9.1 per cent from the same year-ago period. The stapled group, which makes distributions semi-annually, will not be making a payout for Q3.

It owns six hotels in Singapore – Orchard, Grand Copthorne Waterfront, M, Studio M, Copthorne King’s and Novotel Clarke Quay – and Orchard Hotel Shopping Arcade. Also in CDLHT’s portfolio are Rendezvous Hotel Auckland and five hotels in Brisbane and Perth.

For the first nine months of 2011, the distribution per stapled security is 8.11 cents, up 9.2 per cent y-o-y. The Q3 and nine-month distribution figures reflect payout ratios of about 90 per cent, as CDLHT is retaining about 10 per cent of income available for distribution as working capital to fund its capital expenditure requirements.

The distribution per stapled security for Q3 2011 and for the first nine months of 2011 translate into annualised distribution yields of 7.23 per cent and 7.13 per cent respectively, based on CDLHT’s $1.52 closing price yesterday. The counter slipped three cents yesterday. CDLHT’s results were released yesterday morning before the stock market opened.

In a note yesterday, Standard Chartered Bank analysts said they are reducing distribution per stapled security estimates for 2012-14 by 17-23 per cent as they now expect CDLHT’s portfolio revenue per available room (RevPAR) to fall 20 per cent next year before recovering by 10 per cent in 2013. ‘While our economists expect our key tourist markets to have economic growth of 5-6 per cent in 2012, we think Singapore could see a 2-4 per cent decline in tourist arrivals in 2012 if these economies grow slower than expected.’ It added that CDLHT has priced in a 21 per cent decline in RevPAR in 2012.

Year to date, the counter is one of the main underperforming Singapore Reits, falling 26 per cent compared with the Singapore Reit Index decline of 10 per cent, Stanchart added.

The stapled group’s gearing ratio rose from 21.1 per cent at end-September 2010 to 26.5 at end-September 2011.

For Q3 2011, CDLHT posted a 9.9 per cent y-o-y rise in income available for distribution to $29.6 million – of which $2.96 million will be retained as working capital to fund the capex, leaving about $26.65 million to be paid to security holders.

Gross revenue climbed 15.2 per cent to $36.4 million for Q3 2011 – due to improved hospitality performance across the portfolio and contribution from Studio M Hotel, acquired in Q2 2011 and which accounted for about $2.8 million of the gross revenue increase.

Net property income (NPI) posted a 12.7 per cent y-o-y rise to $33.99 million in Q3, due chiefly to the revenue boost from Studio M Hotel and contribution from the overseas properties. All hotels except for M Hotel, Copthorne King’s Hotel and Orchard Hotel recorded an improvement in NPI. For the first two properties, the drop was due to the absence in Q3 2011 of writebacks of property tax accruals booked in Q3 2010.

Orchard Hotel’s NPI slipped primarily because of a refurbishment which saw 2,268 rooms nights being taken out of its inventory during Q3 2011. In fact, Orchard Hotel was the only one of CDLHT’s Singapore hotels which registered a drop in RevPAR to the tune of 2.3 per cent in Q3 2011 over Q3 2010.

Overall, the Singapore hotels (excluding Studio M Hotel) posted 6.2 per cent y-o-y growth in RevPAR to $211 in Q3 2011. This is the second highest RevPAR that CDLHT has achieved in a quarter since its inception in 2006 – despite the weakness in travel demand in August. ‘Aside from the usual slowdown of travel from the western hemisphere due to the August summer holidays, three public holidays in Singapore in August 2011 – compared to only one in the same period last year – also curtailed business travel during the month,’ CDLHT said. Studio M Hotel continued to do well in Q3 2011, achieving RevPAR of $173, reflecting y-o-y growth of 13.6 per cent.

For Q3 2011, the group’s Singapore hotels (including Studio M) posted a 14.6 per cent y-o-y hike in combined hotel revenue to $81.5 million. Gross operating profit for the Singapore hotels rose 17.9 per cent y-o-y to $44.2 million in Q3 2011.