CDLHT set to acquire Studio M Hotel

CDL Hospitality Trusts (CDLHT) is widely seen by analysts as poised to acquire Studio M Hotel in the Mohamed Sultan area, possibly this year.

The hotel, which opened in April last year and is owned by CDLHT’s sponsor, London-listed Millennium & Copthorne Hotels, is seen by the market as a logical acquisition target for CDLHT.

The trust manager’s CEO Vincent Yeo said yesterday that typically it takes about two to three years for a newly opened hotel in Singapore to stabilise its income and render it a suitable candidate for injection into a real estate investment trust (Reit).

‘But in this strong market, that has shortened considerably; a hotel like Studio M has already reached gestation within a nine-month period,’ he said.

When asked about target acquisition markets, Mr Yeo said: ‘Singapore still offers the best prospects in terms of visibility and growth potential.’

Singapore hotels posted a 14 per cent year-on-year rise in hotel revenue to $76 million with gross operating profit (GOP) climbing 15.4 per cent to $39.3 million. Revenue per available room (RevPAR) for the Singapore hotels rose 20.6 per cent year on year to $194 in Q4 2010 but was still shy of the record $222 achieved in Q2 2008.

Mr Yeo highlighted that CDLHT’s Singapore hotels achieved their highest ever quarterly occupancies of 89-92 per cent from Q2 to Q4 2010 since the trust’s IPO in June 2006 due to the strong growth in visitor arrivals in Singapore in 2010, notwithstanding the addition of 5,468 new hotel rooms in the Singapore market last year.

He points to a structural boost in accommodation demand brought about by the opening of the two IRs last year, which led to rising leisure demand for hotel rooms during the weekend and festive holiday periods which boosted overall occupancy rates, while robust corporate demand was sustained during the weekdays.

As a result, CDLHT has enjoyed a narrowing in the gap between its Singapore hotels’ business on weekends (including Fridays) and weekdays since the two IRs opened. RevPAR during weekends was about 12-13 percentage points lower than on weekdays in Q4 last year; the gap used to be about 22 percentage points around the beginning of 2010, before the IRs opened, Mr Yeo said.

Friday occupancies now match those on weekdays (in the past they were noticeably lower) and Mr Yeo reckons this is due to corporate travellers being more willing to extend their stay to the weekends to check out the IRs and its attractions.

‘I still remain very upbeat about tourism prospects for Singapore. I see continued good years ahead,’ he added, citing new attractions that will open in coming years, expansion of the low cost carrier market, strong economic growth in Singapore and the region, and growth in the MICE business.

Standard Chartered Bank, which lists CDLHT as one of its top Singapore Reit picks, said yesterday: ‘We continue to believe CDLHT will make accretive acquisitions in 2011, given its low cost of equity (5.6 per cent 2011 estimated distribution per unit yield) and debt (2-3 per cent).’

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