CDL H-Trust – BT

CDLHT eyeing Asia-Pacific hotels, but will give China a miss

CDL Hospitality Trusts (CDLHT), one of the largest hotel owners in Singapore, is looking to acquire hotels in Vietnam, India and Japan, but will avoid China due to an oversupply.

The company also expects that Singapore’s booming tourism sector, lifted by the opening of two new casino resorts, will boost hotel room rates further from an average of $220 a night seen in its second quarter, CEO Vincent Yeo said.

‘Singapore is still our favourite market by far in terms of feasibility and prospects, but we can’t just confine ourselves to Singapore, so we are looking at other countries within Asia-Pacific, for example, Vietnam, India and Japan,’ Mr Yeo said.

He said the company has a potential war chest of about $550 million including cash and its ability to raise debt.

CDLHT, which currently has a gearing, or debt to asset ratio, of 18.6 per cent, said it was comfortable about raising its gearing to up to 40 per cent.

The trust, which owns hotels in Singapore, Australia and New Zealand, is managed by a unit of City Developments, Singapore’s and South-east Asia’s second largest property firm after CapitaLand.

Earlier this year, it bought five hotels in Australia for A$175 million (S$213.3 million) from a company part-owned by French hotel group Accor.

About 80 per cent of CDLHT’s rental income comes from its Singapore properties, but Mr Yeo hopes its foray into overseas markets will lower this to 60-70 per cent in the next five years.

CDLHT does not plan to expand into China due to concerns about the supply of hotels in some cities.

‘Most hotels in Chinese cities are doing very badly right now and there’s been severe over-building… Occupancies are low and rates have fallen as a result, but yet people are still building (hotels),’ Mr Yeo said.

Mr Yeo said the surge in Singapore’s tourists arrival is likely to continue as new projects come onstream, such as a river safari and a high-end motor sports hub.

‘I think we are only in the incipient stages of what we call a change in the structural demand in Singapore. The (casinos) are a catalyst to bigger and brighter things,’ he said.

Despite the positive outlook for Singapore’s tourism sector, several brokerages, like Nomura, have a ‘reduce’ rating on CDLHT, citing a risk of slowing visitor growth in 2011 which may hit hotel vacancy as supply increases.

But Mr Yeo said visitor arrivals, projected to grow at 6.3 per cent a year over the next five years by the government, are likely to exceed supply of hotels. He said income from CDLHT’s own hotels could rise as existing corporate agreements are renewed at higher rates.

Shares of CDLHT closed 1.5 per cent lower on Monday at $1.94, but have risen about 10 per cent so far this year. — Reuters