Paying more for your rooms

• RevPAR continues to trend upwards
• CDL HT sees firm occupancies in 1Q10 despite competition from Resorts World hotels
• Maintain BUY, TP S$2.00 based on DDM

A good quarter. In a traditionally weak 4Q, CDL HT reported commendable S$26.1m revenue (-7% yoy, 14% qoq) and NPI of S$24.7m (+1.1% yoy, 16% qoq), in line with our estimates. CDL HT’s hotels continued to perform well, with RevPAR growing steadily to S$159 per room night, up 3% qoq but remained below last year’s rates. Sustained high average occupancies of 89% also signal the possibility of rate hikes come 2010. 4Q09 DPU of 2.67 Scts was slightly ahead as CDL HT reverted to 100% payout of taxable income.

Firm occupancy rates despite competition from Resorts World. Recent news that hotels at Resorts World Sentosa (RWS) are fully booked till Mar’10 is positive for the local hotel industry. Average room rates for RWS hotels are S$282-422 per roomnight, well above industry average of S$200 per room-night also allay earlier fears of RWS slashing rates to boost occupancies. CDL HT guided that they did not see any drop in occupancies from current levels and could hike rates up in 1Q10. We also expect its strategically located hotels to enjoy spillover demand for rooms when RWS is fully operational.

Fundamentals remain sound, maintain BUY, TP S$2.00. We maintain our BUY call on CDL HT as we firmly believe that it will be a key beneficiary of an increasingly buoyant tourism outlook. Our DDM-based TP is adjusted to S$2.00 due to our raised payout assumptions. Catalysts for further re-rating stems on potential acquisitions given the trust’s low gearing ratio.

CDLHT posts 88.9% average occupancy

But weaker room rates drag down RevPAR by 13.6% to $159 in Q4’09

CDL Hospitality Trusts (CDLHT), a favourite stockmarket proxy for the improving outlook for Singapore’s tourism sector, achieved an average occupancy rate of 88.9 per cent for its five Singapore hotels in the fourth quarter last year, a better showing than the fourth quarters of the preceding two years.

‘We’re seeing demand levels back to where they were prior to the economic crisis, albeit room rates are lower,’ said Vincent Yeo, CEO of the trust’s manager.

‘In November 2009, we did the highest occupancy rate ever bar one month (since the inception of our Reit in July 2006),’ he added.

However, weaker room rates dragged down room revenue per available room (RevPAR) by 13.6 per cent to $159 in Q4 2009 from $184 in Q4 2008. RevPAR peaked at $222 in Q2 2008.

The trust posted income available for distribution to unitholders of about $21.7 million for Q4 2009, a 14 per cent improvement from the same year-ago period.

Despite a 7.1 per cent year-on-year (y-o-y) drop in gross revenue to $26.1 million in Q4 2009, CDLHT achieved a 14 per cent y-on-y rise in net property income to $24.7 million. This was due to lower property tax expenses (inclusive of a 40 per cent property tax rebate granted by the Singapore government last year) and lower other property expenses.

The latest Q4 distributable income reflects a distribution per unit (DPU) of 2.58 cents.

For full year ended Dec 31, 2009, CDLHT posted total distributable income of $75.8 million, a decline of 17.6 per cent from the preceding year. The trust is paying out a total of $71.7 million, reflecting a 94.6 per cent payout ratio. It is retaining the balance $4.1 million (which is tax-exempt income) to help fund future capital expenditure on its properties.

CDLHT had $5.7 million in cash and cash equivalents as at end-2009.

CDLHT, which pays distributions semi-annually, will be making a payout of 4.71 cents per unit for the second half of last year. The full-year 2009 payout works out to 8.57 cents, which translates to nearly 5.2 per cent yield based on the counter’s $1.66 closing price yesterday.

The trust, which was listed on the Singapore Exchange in July 2006, owns five hotels in Singapore – Orchard, Grand Copthorne Waterfront, M, Copthorne King’s and Novotel Clarke Quay – and Orchard Hotel Shopping Arcade. It also owns a hotel in New Zealand – the Rendezvous Hotel Auckland.

London-listed Millennium & Copthorne Hotels (M&C), as sponsor of CDLHT with a 39.5 per cent stake, has given a right of first refusal to sell its Singapore properties to the trust for a five-year period starting from CDLHT’s listing date in July 2006. M&C will open a new hotel, Studio M, in the Robertson Quay area around April.

M&C’s parent City Developments has a stake in the St Regis Singapore. Overseas, the trust’s acquisition strategy is dependent on where the deals emerge and ‘the markets where we’re seeing the most deals flow are Australia and Japan’, Mr Yeo said.

Singapore’s pool of hotel rooms is expected to increase by about 5,800 rooms or 17 per cent this year. Most of the additional supply will come from the two integrated resorts (IRs).

Achieving even a 0.5-night increase in the average length of visitor stay in Singapore will help to offset a large part of the additional supply in 2010, Mr Yeo argues.

The demand-pull factors in Singapore are escalating to a new plane with the opening of the IRs. With a mix of gaming entertainment, conference facilities and the Universal Studios theme park, ‘the IRs mark a significant step forward in Singapore’s transformation into a world-class travel destination and a preferred mono-travel destination’, the trust manager said.

Mr Yeo said that ‘gaming is somewhat addictive so you could see very frequent visits’ from visitors in neighbouring countries such as Indonesia and Malaysia.

The draw of the IRs should also help to convert some of the transit passengers at Changi Airport to visitor arrivals into Singapore.

‘Less than 7.4 million of a total of 37.2 million passengers passing through Changi Airport in 2009 would have visited Singapore,’ the trust manager noted.