The group is banking on a strong events line-up, robust tourism infrastructure and enduring wanderlust to boost its room take-up rates, which have yet to catch up with pre-Covid norms

 

CDL Hospitality Trusts : J85 -1.82% (CDLHT) has been riding the recovery in the hospitality sector, on the back of what its managers&rsquo head honcho Vincent Yeo terms the &ldquo evolution of hotel room rates&rdquo in its core market of Singapore.

 

For a long time, room rates in Singapore were significantly lower than in other capital cities, despite hotels here running at very high occupancies. However, things began to change last year as Singapore emerged from the Covid-19 pandemic.

 

&ldquo Hotels accepted lower occupancy but achieved higher room rates, ultimately collecting more revenue,&rdquo said Yeo.

 

The trigger was a labour shortage in the city-state, which meant that a hotel&rsquo s available rooms were limited to the number that could be cleaned up. &ldquo Because of the lower inventory for sale, the hotels pitched their rates higher and they found that the demand was there,&rdquo said Yeo.

Even after the labour shortage eased, this pattern of selling rooms at higher rates continued until September this year. &ldquo As a result, Singapore hotel room rates have gravitated closer to what major capital cities can command, based on data for the first nine months of this year,&rdquo said Yeo, the chief executive officer of CLDHT&rsquo s managers, in an interview with The Business Times.

 

Data from the Singapore Tourism Board (STB) shows that the average room rate for hotels here hit S$325.46 a night in September this year. This was up 13.4 per cent from the previous month and was the highest level since such data was first captured in STB&rsquo s Singapore Tourism Analytics Network in January 2008.

 

However, the figure slipped 14.6 per cent month on month to S$278.08 in October. Likewise, revenue per available room (RevPAR) fell 19.3 per cent to S$217.05 in October, from the record S$269 in the preceding month.

 

Some analysts have attributed the declines in October partly to seasonal factors the September room-rate figure had been boosted by the Formula One Singapore Grand Prix. Moreover, competition from other Asia-Pacific tourist destinations, such as Japan and South Korea, are thought to have dampened tourist arrivals in Singapore, causing weaker hotel demand.

 

Said Yeo: &ldquo The next phase of revenue maximisation, at least for CDLHT, is to build up occupancy, which has yet to catch up with pre-Covid levels.&rdquo

 

At CDLHT&rsquo s Singapore hotels, the occupancy figure for the first nine months of this year was 75.2 per cent, lower than the 86.2 per cent in the corresponding period in 2019.

 

Yeo is optimistic about the Republic&rsquo s ability to pull in visitors. &ldquo The events calendar is getting stronger, with a string of concerts and conferences in 2024. Another draw is the development of the local culinary scene,&rdquo he added.

 

&ldquo Tourism offerings are getting better by the year. STB and the Singapore government are doing an excellent job in terms of the whole tourism infrastructure and air connectivity that&rsquo s being built up.&rdquo

 

Wanderlust

Yeo also pointed to the strong desire for travel that has manifested post-Covid. &ldquo We&rsquo ve seen this phenomenon in many parts of the world, including at our hotel in Florence, Italy, where people are prepared to pay room rates that are 40 to 50 per cent above the 2019 level.&rdquo

 

He acknowledged there is an element of pent-up travel, but added: &ldquo In the context that the economic environment is so poor right now, and that there are still enough people willing to pay premium room rates, really attests to the strength of the wanderlust element. I find this very encouraging for tourism, that if you have the right product and the right experience for people, they will pay.&rdquo

 

Even when pent-up demand recedes, some of those who had held back on travelling due to financial restraint will travel again or do so more extensively as economies, including China&rsquo s, recover, said Yeo.

 

Not putting all its eggs in one basket

Prospects for hospitality groups such as CDLHT are markedly brighter these days compared with during the pandemic, when most air travel was halted and hotels survived on the quarantine business from the Singapore government and later on, the staycation business from residents stuck here.

 

That said, the lessons learnt from the episode &ndash including the importance of diversification, not only geographically but in terms of business activity &ndash have not been lost on the stapled group.

 

In July 2021, CDLHT said it would broaden its principal investment mandate from hospitality assets to include other segments of the accommodation spectrum, or &ldquo living sector&rdquo , including rental housing and purpose-built student accommodation (PBSA). In the following month, the stapled group entered the build-to-rent (BTR) residential sector for a development in Manchester, involving an investment of £ 73.3 million (S$136 million).

 

Slated for completion in mid-2024, The Castings will have 352 apartments ranging from studios to three-bedders.

 

The BTR segment is also known as the private rented sector (PRS), and is akin to the multifamily residential sector in the US and Japan. A PRS asset is typically a residential building with the apartments leased out individually &ndash to singles, couples or families. Typically, the entire building is under single ownership, enhancing curation.

 

&ldquo The rental housing market has been extremely strong in the UK. High interest rates on mortgages have deterred many potential homebuyers, who have had to turn to the rental sector,&rdquo said Yeo.

 

However, he expects it to be challenging to find more investments in the BTR segment, with the current high interest rate environment resulting in negative spreads for property acquisitions generally in most markets, except for Japan, where interest rates are very low, he observed.

 

With hotel acquisitions also affected by the same issue, the group has concentrated on refurbishing its hospitality assets to maximise their potential.

 

Grand Copthorne Waterfront Hotel&rsquo s competitive edge in the meetings, incentives, conferences, and exhibitions (Mice) business has been sharpened, following a complete revamp of its conference facilities. Hotel rooms in the property, next to the Singapore River and near Havelock MRT station, have also been spruced up.

 

Lifestyle orientation

Over the years, CDLHT has also catered to the growing demand for lifestyle-oriented hotels, with its acquisitions of W Singapore &ndash Sentosa Cove in July 2020 and Hotel Brooklyn in Manchester in 2022. Another lifestyle offering in the pipeline, Moxy Singapore Clarke Quay, is expected to be completed in late 2025.

 

When the interest rate environment normalises, acquisitions will return to centre stage in CDLHT&rsquo s growth strategy. Target markets include the UK, the rest of Europe, Japan and Singapore.

 

For all real estate classes in Singapore, including hotels, values have gone up over time, Yeo noted. &ldquo Despite all the trials and tribulations we&rsquo ve seen in recent times, hospitality has shown its operational and financial resilience over time.&rdquo

 

CDLHT owns 19 operating assets, comprising 16 hotels (in Singapore, Auckland, Perth, Tokyo, Manchester and Cambridge in the UK, Munich and Florence), two resorts in the Maldives, and the Claymore Connect mall adjoining Orchard Hotel.

 

All of the Singapore properties were acquired from either sponsor Millennium & Copthorne Hotels (M& C) or M& C&rsquo s parent City Developments Ltd : C09 +4% (CDL). In November 2019, CDL privatised M& C, which has a stake of about 27.8 per cent in CDLHT as at Sep 30, 2023.

 

There are potentially still hotels in its sponsor&rsquo s portfolio that will be of interest to CDLHT, Yeo said. &ldquo At the right time, it will come down to, I guess, whether the valuation works for both parties. When we have a normalised interest rate environment, we can revisit the opportunities. And it may not just be hotels.&rdquo

 

CDL has also been building up its presence in other living sectors, including PRS in the UK, Japan, US and Australia, as well as PBSA in the UK it could sell some of these assets to CDLHT.

 

Having gone through the pandemic, when hotels had to operate more leanly than ever before, the group is now better prepared to face challenges.

 

&ldquo Increasingly, we&rsquo re living in a more erratic global environment, be it interest rates, inflation, wars, (or) pandemics&hellip It doesn&rsquo t change our outlook in terms of the desire to grow and expand it&rsquo s just about taking a longer-term view,&rdquo said Yeo.

 

&ldquo Our focus now is delivering the right products to our customers.&rdquo

According to online booking platform Trip.com, searches for flight tickets increased by 90 per cent in the hour after the visa exemption agreement between Singapore and China was announced.

 

CDL Hospitality Trusts : J85 +2.67% (CDLHT) posted a 23.4 per cent increase in its net property income (NPI) for the third quarter ended Sep 30 to S$39 million, up from S$31.6 million the year before.

 

Gross revenue grew 19.8 per cent to S$70.1 million from S$58.5 million, with more than half the increase contributed by its Singapore hotels, said the managers on Friday (Oct 27).

 

The broad improvement in the stapled group&rsquo s operational results reflects a continued recovery of international travel. There were increases in its revenue per available room (RevPAR) across its portfolio markets, except for Australia and Germany.

 

RevPAR for its Singapore hotels rose 19.9 per cent on year, supported by an average room rate growth of 21.4 per cent &ndash despite a 1.2 percentage-point dip in occupancy.

 

&ldquo Four hotels in CDLHT&rsquo s Singapore portfolio &ndash Grand Copthorne Waterfront Hotel, M Hotel, Copthorne King&rsquo s Hotel and W Hotel &ndash achieved their highest Q3 RevPAR,&rdquo the managers noted.

 

NPI of the group&rsquo s main market in Singapore went up 11.6 per cent to S$25.2 million.

 

Among other markets in its portfolio, CDLHT recorded significant growth in Japan from the rapid increase of international visitors. RevPAR measured in the local currency rose 102 per cent, and NPI grew 234.1 per cent in tandem.

 

In Australia, however, RevPAR fell 7.1 per cent and NPI plummeted 51.7 per cent. This was the result of weaker demand during the low season.  

 

For the three quarters ended September, the stapled group, which comprises CDL Hospitality Real Estate Investment Trust and CDL Hospitality Business Trust, posted 20.4 per cent growth in gross revenue to S$189.3 million.

 

The growth was partially offset by lower contributions from Grand Millennium Auckland in New Zealand, after its exit from the government isolation programme and return to public trading from Q2 last year.

 

The NPI of S$101.9 million was 23.3 per cent higher on year, driven by the Singapore, Germany, Italy and Japan portfolios, which grew collectively by S$21.5 million year on year.

 

As at end-September, CDLHT&rsquo s gearing stood at 38.4 per cent, with S$694 million debt headroom to 50 per cent.

 

The managers highlighted its &ldquo healthy liquidity position&rdquo , with cash reserves of about S$64.9 million.

 

CDLHT&rsquo s weighted average debt to maturity was around 2.2 years, with S$383 million due in 2024, and S$390 million in 2025.

 

Slightly more than half of all the borrowings were under fixed interest rates. Of the debt in Singapore dollars, 73.8 per cent was under floating rates.

 

The managers also noted that for every 1 per cent increase in the all-in interest cost on total borrowings, the distribution per stapled security would drop S$0.0087.

 

In light of the recovery in tourism, the managers expect CDLHT&rsquo s overseas portfolio to continue to register gains at varying paces.

 

&ldquo New Zealand&rsquo s and Western Australia&rsquo s tourism recovery continues to be supported by improving flight connectivity and tourism campaigns.

 

&ldquo Inbound tourism into Japan is likely to remain strong, driven by pent-up demand, a weak currency and the country&rsquo s overall attractiveness as a tourist destination.&rdquo

 

The managers said they will explore investment opportunities via asset enhancements, noting that Grand Copthorne Waterfront Hotel in Singapore has completed its full renovation, and that Grand Millennium Auckland&rsquo s renovation is ongoing.

 

Construction of the residential build-to-rent building in Manchester, UK, remains on track to be completed in mid-2024, added the managers.

 

&ldquo Residential rental growth there remains robust, and the property is well-positioned to benefit from favourable demand and supply dynamics.&rdquo