CDL Hospitality Trusts Financial Results Ending 31 Mar 2017

“We are pleased to report respectable growth in income for 1Q 2017. Our diversification strategy coupled with active asset management has allowed us to navigate the headwinds faced in some of our core markets. In particular, Grand Millennium Auckland’s new lease, which was negotiated last year, allows CDLHT to capture the strong growth in the New Zealand market.”

Mr Vincent Yeo, Chief Executive Officer

2.42 cents SGD (1Q 2017)

CDL Hospitality Trusts reports total distribution of S$24.1m for 1Q 2017

  • Net property income increased by 6.4% to S$35.9 million for 1Q 2017
  • Total distribution per Stapled Security for 1Q 2017 was 9.0% higher at 2.42 cents
  • Strong performance from Grand Millennium Auckland boosted portfolio performance in 1Q 2017
  • CDLHT continues to pursue suitable acquisitions to diversify income sources and augment returns

CDL Hospitality Trusts (“CDLHT” or the “Group”), a stapled group comprising CDL Hospitality Real Estate Investment Trust (“H-REIT”), a real estate investment trust, and CDL Hospitality Business Trust (“HBT”), a business trust, today announced its results for the first quarter (“1Q 2017”) ended 31 March 2017.

 

First Quarter ended 31 March 2017

In 1Q 2017, CDLHT recorded NPI of S$35.9 million, an increase of 6.4% as compared to 1Q 2016. This was supported by strong NPI growth from the New Zealand (“NZ”) Hotel as a result of higher variable rental income which was driven by stronger performance. The change from a largely fixed rent structure to a lease structure with more significant variable rent component for the NZ Hotel allowed CDLHT to benefit from Auckland’s flourishing tourism scene. There was also incremental contribution from Claymore Connect while NPI contribution from the Singapore Hotels was largely unchanged.

However, the growth in NPI was partially offset by lower contributions from the Japan Hotels and the Maldives Resorts on the back of the competitive trading environment in these respective markets, as well as a decline in variable rent from the Australia Hotels. Contribution from the United Kingdom (“UK”) Hotel also recorded a marginal decline due to negative currency translation despite stronger underlying hotel performance.

Net finance costs for 1Q 2017 increased by S$4.7 million to S$11.0 million, mainly due to foreign exchange loss arising from the repayment of a NZ dollar denominated intercompany loan, which has no impact on the distribution of CDLHT.

Overall, total distribution to Stapled Securityholders (after retention for working capital) for 1Q 20171 increased 10.0% year-on-year (“yoy”) to S$24.1 million. Accordingly, DPS for 1Q 2017 was 2.42 cents, 9.0% higher than 1Q 2016.

Mr Vincent Yeo, Chief Executive Officer of CDLHT’s managers, said, “We are pleased to report respectable growth in income for 1Q 2017. Our diversification strategy coupled with active asset management has allowed us to navigate the headwinds faced in some of our core markets. In particular, Grand Millennium Auckland’s new lease, which was negotiated last year, allows CDLHT to capture the strong growth in the New Zealand market.”

 

Review of Portfolio’s Performance and Outlook

Singapore

RevPAR for the Singapore Hotels remained largely stable yoy at S$159 in 1Q 2017 as average occupancy rate improved 4.5pp yoy to 88.4%, despite the absence of the biennial Singapore Airshow event, which attracted over 48,000 visitors to Singapore3 in the previous year. However, overall performance was affected by subdued corporate activity, particularly for the Offshore & Marine and Financial sectors, as well as price competition due to new supply of hotel inventory.

Total international visitor arrivals to Singapore grew 3.4% yoy to 2.8 million for the first two months of 2017, largely underpinned by a 15.5% growth in Chinese arrivals – Singapore’s top source market4. For 2017, Singapore Tourism Board (“STB”) has forecast 16.4 million to 16.7 million visitor arrivals5, representing 0% to 2% yoy growth, implying a slowdown from the 7.7% yoy visitor arrivals growth observed in 2016.

Looking forward, the Singapore hospitality market is expected to experience competitive trading conditions in the near term, with Singapore’s modest growth outlook in 20176 coupled with net supply for industry room inventory estimated to grow by an estimated 3,7677 rooms in 2017, representing a 5.9% yoy growth in existing room stock.

To boost growth in the tourism industry, the Singapore government together with other ASEAN leaders launched the Visit [email protected] Golden Celebration tourism campaign, with an aim to increase international arrivals to the region by 10% to 121 million8. STB also continues to position Singapore as a leading MICE destination, where Singapore has recently signed a partnership to be the designated Southeast Asia host for the International Champions Cup for the next four years, which will feature world renowned football clubs such as Bayern Munich, Chelsea and Inter Milan9 in this year’s tournament. A S$34 million joint investment was also recently announced by STB, Singapore Airlines and Changi Airport Group to strengthen Singapore’s destination appeal and woo business and MICE visitors10.

 

Japan

In Japan, visitor arrivals increased 13.6% to 6.5 million for the first three months of 201711. Consequently, the Japan Hotels enjoyed strong occupancies of over 90% but faced rate pressure as a result of price sensitivity of the market coupled with a relatively strong yen. Accordingly, RevPAR declined by 7.2% yoy due to lower room rates.

The long-term outlook for the hospitality sector in Japan is positive with the government’s aim to welcome 40.0 million foreign visitors by 202012, in conjunction with the 2020 Tokyo Olympics. This is also supported by the Japanese government’s approval of the integrated resorts. In addition, the Japanese government continues to introduce favourable initiatives such as a recent announcement to further relax visa requirements for Chinese tourists from May 2017, in particular, issuance of multiple-entry visas to applicants who are currently only eligible for single-entry visas13.

 

Maldives

In Maldives, international arrivals from China, its top source market, declined by 4.6% yoy14 for the first two months of 2017. Consequently, the Maldives Resorts posted a collective yoy RevPAR decline of 8.8% in 1Q 2017, due to pricing pressures amid aggressive promotions offered by the resorts to secure market share of the declining Chinese arrivals, as well as increase in resort supply.

The near term outlook for the Maldives market continues to be challenging, given the relative strength of the US dollar (“USD”) against some of the top source markets, which has the effect of eroding the spending power of guests from these markets, as rates are priced in USD. The slowdown in luxury spending and moderating growth in China may continue to affect the performance of the Maldives Resorts. The managers of CDLHT have been working with operators of both resorts to improve the market mix as well as taking cost containment measures.

 

United Kingdom

Hilton Cambridge City Centre registered a strong performance in 1Q 2017 with a robust yoy RevPAR growth of 17.9%.

In UK, the weaker pound is likely to improve tourist arrivals in 201715. However, on a more cautious note, there is economic uncertainty due to the formal EU exit negotiations over the next two years.

 

Australia

In Australia, the outlook for the natural resource sector remains subdued over the short to medium term16. Coupled with the increase in new hotel rooms supply in Perth and Brisbane, trading performance of the hospitality sector will likely remain challenging. However, any weakness in the performance of the Australia Hotels is mitigated by the defensive lease structure which provides CDLHT with largely fixed rent.

 

New Zealand

In NZ, the tourism sector continues to enjoy strong growth, reflected by the 11.8% yoy growth in visitor arrivals to a record 3.5 million in 201617. In the first two months of 2017, visitor arrivals increased 6.2% yoy to 0.8 million. Accordingly, the NZ Hotel enjoyed a stellar yoy RevPAR growth of 27.6%.

In the medium term, the increase in new international air services, a strong events calendar and the safe haven appeal of NZ are likely to support the growth momentum in the hospitality sector. Grand Millennium Auckland’s variable lease structure allows CDLHT to benefit strongly from the buoyant Auckland hospitality market.

Mr Yeo concluded: “While the Singapore market continues to absorb additional rooms supply and companies remain cautious on corporate spending, we will focus on the long-term potential of our Singapore assets by seeking asset enhancement opportunities to maintain their competitiveness. We will also continue to pursue suitable acquisitions to diversify our income sources and augment returns to Stapled Securityholders.”

 

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