Thursday, March 3, 2011

CDLHT acquires Studio M Hotel for S$154m

AS expected by the market, CDL Hospitality Trusts has announced the purchase of Studio M Hotel, which soft opened in March last year, for $154 million or about $428,000 per room. The seller is a fully owned unit of CDLHT's sponsor, London-listed Millennium & Copthorne Hotels.


The yield-accretive acquisition will initially be fully funded by debt, resulting in the trust's debt-to-assets ratio rising to around 26.5 per cent post-acquisition, from 20.4 per cent at end-2010.


Asked if CDLHT had plans for equity fund raising, the trust manager's CEO, Vincent Yeo, said: 'There is currently no immediate need to raise funds due to our ample and diversified funding sources. At a post-acquisition gearing level of only 26.5 per cent and with the current favourable financing environment, we are likely to finance this acquisition with other debt facilities including the S$1 billion Multi-currency Medium Term Note Programme established last year.'


The $154 million price reflects a 6.1 per cent pro forma property yield for financial year ended Dec 31, 2010 - above the 5.3 per cent implied property yield for the trust's existing portfolio over the same period. Assuming CDLHT had bought Studio M Hotel on Jan 1, 2010 and held and operated it through to end-2010, the trust's proforma distribution per unit (before deducting income retained for working capital) for FY2010 would increase by 5 per cent or 0.56 cent to 11.74 cents.


On the stock market yesterday, CDLHT closed three cents lower at $1.94 amid a broad market fall.


CDLHT will issue a master lease for at least 20 years and up to 70 years on the hotel to M&C group. The 360-room hotel is in the Mohamed Sultan area. For the first 12 months, CDLHT will receive guaranteed net rent of $9.24 million from M&C group, which reflects about 6 per cent net yield on the $154 million purchase price.


The total acquisition cost will amount to $156.2 million, including the one per cent acquisition fee of $1.54 million to the trust's manager (to be paid through the issue of new CDLHT units) and about $700,000 in other expenses relating to the deal.


Standard Chartered Bank said in a research note yesterday: 'We expect (Studio M's) net property income yield to rise to 7 per cent in 2011 and we estimate this acquisition to be 3 per cent accretive to 2011 estimated DPU (distribution per unit).'


The 26.5 per cent gearing level following the purchase of Studio M still leaves CDLHT with capacity for $350 million of new acquisitions, Stanchart added. The trust raised equity in 2007 and 2010 when gearing was 43 per cent and 31 per cent respectively.


The acquisition is subject to approval by CDLHT's unit holders. The trust is a favourite among many analysts as it is a good proxy for Singapore's booming hospitality business.


Studio M will be CDLHT's sixth hotel in Singapore. Following the purchase, the trust's hotel rooms inventory on the island will grow 15.3 per cent to 2,711 rooms, boosting the trust's exposure to the buoyant Singapore hospitality market.


The nine-storey hotel was built on a 99-year leasehold plot that M&C group clinched for $45.8 million or $518 per square foot of potential gross floor area, at a state tender in November 2006.


In terms of future acquisitions for CDLHT, Mr Yeo said: 'Singapore remains our favourite market in terms of prospects. By far, it is the most attractive market in the Asia-Pacific. We are also looking around South-east Asia and other growth markets like India and Vietnam, as well as Japan.'


He remained upbeat on prospects for Singapore's tourism and hospitality sector, reiterating that there has been a 'structural boost in accommodation' since the opening of the integrated resorts last year. Hotel room demand will remain robust based on the official projection that visitor arrivals will increase from 11.6 million in 2010 to 17 million in 2015, he added. 'The phased opening of new attractions at the IRs as well as other upcoming attractions in Singapore can be expected to sustain the growth momentum of the tourism and hospitality sector.'

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