Friday, September 14, 2012

CDL has the potential to grab growing tourism industry

CDL Hospitality Trust is a stapled group. It has CDL Hospitality Real Estate Investment trust and CDL Hospitality Business trust. It was founded in 2006 and is based in Singapore. The trust owns and manages 12 hotels and a shopping center in Singapore, New Zealand and Australia. The current share value of the trust is S$1.93. The trust focuses on investing on income-producing real estate assets that are primarily used for hospitality. The company has been chosen to be taxed as REIT. As a REIT, it would not be subjected to corporate income tax on 90% of its total income which is distributed to shareholders. 

Current Scenario: The total net operating revenues of the trust increased with 21.41% which is from S$26,605 thousands to S$32,301 thousands. The operating value increased from S$24,719 thousands to S$30,120 thousands which means 21.85% change. The returns on the equity reached 1.62% from 1.81% with a total asset value increase from 1.21% to 1.26%. The trust achieved net sales from 80.48% to 71.46% when compared to last year. The total liabilities were 28.58% when compared to 49.75% which was in the last year. The current assets went from 0.10 to 2.43. 

CDL Hospitality Trust’s second quarter revenue rose by 6% to S$36.6 million. This decreased the distributable income by 0.9% to S$28.2 million. Though some of the Singapore based hotels of the trust has seen gross revenue down, but remember not all hotels are the same. Especially the island wide hotels have seen a rise of 29.9% to S$435. The occupancy for these is up by 90.8% last year and this year it’s up by 99.1%. 

Future Scope: The maximum revenue for the trust is generated from Singapore. It generates almost 80% revenue of the CDL hospitality Trust. However, we expect tourist arrival to register 5.2% CAGR over 2010 to 2015. The Trust advices the investors to stay cautious, they are planning to bring in more hospitality projects and more hotel rooms in the near future. The stock has increased up to 35% YTD and at FY12F DPU yield of 5.8%. CDL’s high revenue per available rooms would continue to gain traction in subsequent quarters. The trust is all set to take advantage of tourism industry in Singapore. It maintained its buy rate and a target price of S$2.00 and shares in the units were up by 1.4% at S$1.785. The trust had a return of 15.5% during current financial year. Currently with low gearing ratio of 25.2% and an internal maximum gearing rate of 40%, there is much room for the trust to undertake future acquisitions. 

Conclusion: High-end Singapore hotels is a major source of revenue for CDL Hospitality Trust, Hence it would be in a strong position to take advantage of growing tourism industry in Singapore.  CDL is completely prepared to handle the increase in tourists in Singapore. Given the limited additional hotel supply in the coming years along with the new attractions in 2012 the trust is well positioned to cater the needs and gain profits.

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