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CDL Hospitality Trust - Is Hospitality Industry Recovering?

Posted on the 03 May 2017 by Sgyounginvestment

Previously I blog about the hospitality industry and why I think that it may be the next investment opportunity. You can read the post here. CDL Hospitality Trust is one of the hospitality trust stocks which I own and recently it reported its Q1 financial results. Looking at its results, we can know whether the hospitality industry is still on the track to recovery. Some of the hotels they own are Orchard Hotel, Grand Copthorne Waterfront Hotel, M Hotel, Copthorne King's Hotel, Studio M Hotel and Novotel Singapore Clarke Quay.

The hospitality industry, especially in Singapore has suffered quite a bit in recent years due to the poor economic conditions globally. Overall, the hotels revenue per available room (RevPAR) in Singapore has declined to as low as during the global financial crisis in 2007. This has caused the earnings of the companies in this industry to suffer.

For CDL hTrust, net property income (NPI) went up 6.4% in Q1 2017 as compared to Q1 2016. This resulted in the DPS going up 9% YoY. The increase was mainly due to higher contribution from its New Zealand hotel which was up 90.2%. For Singapore, NPI increase marginally by 1.5% only. CDL hTrust has most of its hotels (69.1%) in Singapore so the focus is still in this market.

Performance of Singapore Market
CDL hTrust Singapore hotels' occupancy rate went up from 83.9% in Q1 2016 to 88.4% in Q1 2017 which is a 4.5pp increase. However, RevPAR still declined but only marginally by -0.8%. This is a huge improvement from the -6.9% decline in Q1 2016 vs Q1 2015. It seems like the decline has slowed down and bottomed out.

For the macro conditions of the hospitality industry, STB estimates moderate growth in visitor arrivals of 2% and YTD February 2017 visitors arrival grew by 3.4% yoy with China visitors at the highest. Additionally, a S$34 million investment was recently announced by STB, SIA and Changi Airport Group to strengthen Singapore's destination appeal and woo business and MICE visitors. This is on top of the other initiatives which I've listed out in my previous blog post.

As mentioned in previous blog post, we can expect hotel supply to gradually taper off in 2018 which we should see a stronger recovery in the RevPAR. CDL hTrust price went up to $1.55 with Price to Book ratio of 0.98. This is at fair value and not too cheap in my opinion. I bought this stock back when it was at PB of around 0.8. Nevertheless, the current yield is about 6.45% which isn't really too attractive for me. A dividend yield of more than 7% would be more attractive for hospitality stocks. I would accumulate more if there are any opportunities to buy a lower prices.

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