Letter to Unitholders

On behalf of the Board of Directors of the H-REIT Manager and the HBT Trustee-Manager (collectively the "Managers"), I am pleased to present our annual report for the financial year ended 31 December 2017 ("FY 2017").


FY 2017 was an eventful year where we successfully expanded our asset base and penetrated key new markets, through the acquisition of The Lowry Hotel in Manchester, United Kingdom, and the Pullman Hotel Munich in Germany. Our expansion in Europe has diversified our geographic exposure and supported our income growth, and also allowed us to further capitalise the low interest rate environment in Europe.

At the end of FY 2017, we announced CDLHT's first divestment: the disposal of our two Brisbane hotels, Mercure Brisbane and Ibis Brisbane, which was completed in January 2018. In disposing of these assets for an attractive exit yield and premium over the original purchase price, we have furthered our asset and capital management strategies of unlocking the value of our assets.

During the year, we successfully tapped the equity capital market through a rights issue which was oversubscribed by 2.2 times. This exercise enlarged our market capitalisation and improved the liquidity of CDLHT's Stapled Securities. The proceeds from the rights issue, together with the proceeds from the sale of the Brisbane assets, have significantly strengthened our balance sheet.

CDLHT has demonstrated consistent execution of its acquisition, asset and capital management strategies. As such, CDLHT has expanded its global footprint to seven countries and delivered commendable growth for Stapled Security Holders, generating approximately 39.9% (1) in total returns for 2017. Our portfolio value grew by 12.5% to S$2.74 billion as at 31 December 2017. After the divestment of our two Brisbane hotels, we have 15 hotels and two resorts, consisting of 5,002 rooms, with a portfolio value of S$2.67 billion.

With ample debt headroom, we will strive to continually create value and enhance returns for Stapled Security Holders through actively pursuing suitable acquisitions in markets with sound long term fundamentals and engaging in active asset enhancement to maximise the potential of our investments.


Notwithstanding the backdrop of economic and political uncertainty worldwide, the global economy saw a broadbased recovery in 2017, particularly from the US, Eurozone and China, and Singapore's domestic economic growth was also positive during the year (2).

Our portfolio performance was boosted by our recent acquisition of hotels in key cities which provided new streams of income and also the benefits of income diversification, while some of our key markets delivered organic growth. Net Property Income ("NPI") for FY 2017 recorded robust year-on-year ("yoy") growth of 10.3% to S$151.8 million, supported by inorganic contribution from The Lowry Hotel and Pullman Hotel Munich, as well as stellar performance from our NZ Hotel, which recorded an NPI growth of 46.3%. NPI of our Singapore Hotels remained stable while there was higher contribution from our only retail mall, Claymore Connect. This improvement helped to offset weaker contributions from our Japan Hotels and Maldives Resorts, as well as lower contribution from Hilton Cambridge City Centre.

Net finance costs for FY 2017 was lower by S$5.7 million, mainly due to savings in interest expense largely from the use of rights issue proceeds to repay existing borrowings, as well as lower exchange losses (which has no impact on the distributable income of CDLHT).

Consequently, we are pleased to report S$110.3 million in total distribution to Stapled Security Holders for FY 2017, an increase of 11.3%. Due to the enlarged stapled security base from the rights issue, total Distribution per Stapled Security ("DPS") for FY 2017 was 9.22 cents, lower compared to 9.63 cents (3) in FY 2016. Excluding the effect of the rights issue, DPS for FY 2017 would be 11.04 cents, an increase of 10.4% yoy.


It is pleasing to see that our core market, Singapore, is showing stability amidst the 5.1% (4) increase in total hotel rooms supply in 2017. While room rates are likely to remain competitive in the near term as new hotels seek to build their base, supply growth tapers off from 2018 with an estimated 892 (5) net rooms or 1.3% of existing room stock opening in 2018. The pipeline of new hotels is expected to slow down to a CAGR of 1.3% over the next three years, as compared to a CAGR of 5.5% in the past three years.

On the demand front, visitor arrivals to Singapore grew 6.2% yoy to 17.4 million for 2017, mainly due to an increase in arrivals from China and India (4). The Singapore Tourism Board ("STB") continues to position Singapore as a leading MICE destination and secure new flagship events (6). In 2018, Singapore is also the ASEAN chairman, where Singapore will host several meetings and events involving foreign delegates across the year, including the 32nd and 33rd ASEAN Summit (7). We look forward to capitalising on a stronger event calendar in Singapore for 2018.

The pace of growth of the Singapore economy is projected to remain firm and global growth to pick up marginally (2) in 2018. The macro-economic backdrop together with STB's forecast of international visitor arrivals to grow between 1.0% to 4.0% for 2018 (8) are expected to be supportive demand drivers for the Singapore hospitality market (9).

Tourism demand in Japan continues to be healthy with visitor arrivals increasing 19.3% yoy to 28.7 million for the year 2017 (10). While price sensitivity of the economy accommodation market was heightened by rising supply, the long-term outlook for the hospitality sector in Japan is expected to be positive with the government's aim to welcome 40.0 million foreign visitors in 2020 (11) in conjunction with the Tokyo Olympics.

In New Zealand, international visitor arrivals increased 6.7% yoy to a record 3.7 million for 2017 (12), reflecting the steady growth momentum in the tourism market. This was also bolstered by increased flight capacity into the country and a strong line-up of sporting events such as the World Masters Games and British and Irish Lions Rugby Tour. Looking ahead, the construction of the New Zealand International Convention Centre, which is in close proximity to our NZ Hotel, is expected to complete in 2019 (13). This will further strengthen the infrastructure for MICE activities in Auckland, providing another positive demand driver for our NZ Hotel.

In the Maldives, tourist arrivals increased 8.0% yoy for 2017, however, demand growth was outstripped by the growth in new supply (14), which resulted in a very competitive trading environment. While there is increased flight capacity from destinations including Europe, Southeast Asia and the Middle East to help support demand growth, there is nearterm uncertainty due to the political situation in Malé, the capital city of Maldives. In the medium term, there is also an expected increase in new resorts supply.

While the Perth and Brisbane hospitality markets continue to experience an increasing supply of new hotels, the defensive lease structure of our Australia Hotels will mitigate any downside risks in the hotels’ performance.

In the UK, visitor arrivals increased 5.5% yoy to 33.3 million for YTD October 2017 (15). Total arrivals are forecast to grow 4.4% in 2018, although Brexit and GBP-related uncertainties may weigh on overall demand (16).

The Eurozone continues to record economic growth and the positive economic environment has led to strengthening business optimism in Germany (17). Total international visitor arrivals to Munich increased 12.6% yoy for YTD November 2017 (18) and the pipeline of trade shows over the next two years (19) will provide support for the Munich hospitality market in the face of increasing new rooms supply in the city.


We recognise that hospitality markets go through cycles due to supply and demand factors. Hence, we have emphasised on achieving geographical diversification in the past few years.

On 4 May 2017, CDLHT expanded its presence in UK through the acquisition of The Lowry Hotel, an iconic 5-star luxury hotel with 165 rooms located in proximity to the heart of Manchester city centre. The property price was £52.5 million and was fully funded by GBP-denominated debt.

The acquisition in Manchester reinforces CDLHT's strategy to invest in markets with robust medium to long-term growth potential. Manchester is one of the most important cities outside of London with a buoyant economic outlook, being one of the key beneficiary cities of the Northern Powerhouse proposal (20) by the UK government to boost economic growth in the North of England. The hospitality market is further supported by a strong mix of corporate and leisure demand, particularly in football-related and entertainment demand, which features prominently for The Lowry Hotel.

On 14 July 2017, we marked our maiden entry into Germany through the acquisition of Pullman Hotel Munich, for a property price of €98.9 million (21). Munich is a compelling destination for our first acquisition in continental Europe, allowing CDLHT to benefit from a potential economic recovery in the region through exposure to the largest economy in Europe. Besides being an important business hub and trade fair destination within Germany, Munich has diverse demand drivers through its famous cultural and sporting attractions.

Pullman Hotel Munich consists predominantly of a 4-star hotel with 337 rooms and a comprehensive suite of facilities, which underwent a full renovation between 2012 and 2016. It also has secondary spaces currently let out to a few retail and office tenants. In addition, it is strategically located adjacent to the commercial district of "Parkstadt Schwabing", which is home to a variety of national and international companies, including Amazon, GE Healthcare and the German headquarters of Fujitsu, Microsoft, IBM and Munich Re.

We are pleased that our two acquisitions in 2017 has augmented CDLHT's portfolio and also allowed us to capitalise on a low point of the currency cycle of the GBP as well as the low funding environment in Europe.


The Managers constantly review CDLHT's portfolio and identify opportunities to optimise and create value. Asset enhancement initiatives and active lessee/hotel operator management are pursued to improve our assets' value and competitiveness, which allow CDLHT to capture the medium and long term growth potential of our properties.

To position CDLHT for the recovery in the Singapore hotel sector, we have embarked (or will embark) on a refurbishment exercise for Orchard Hotel and will continuously explore asset enhancement opportunities for our Singapore Hotels. The renovation of the restaurant in Orchard Hotel, Hua Ting, was completed and it has opened in December 2017. Refurbishment works for the guest rooms in the Orchard wing of the Orchard Hotel is scheduled for 2018, together with planned works for a significant portion of the public areas, including the lobby and F&B outlets. While the hotel will face some disruption in the short term, the completed refurbishment exercise will improve overall guest experience and augment the competitiveness of the asset.

For CDLHT's overseas assets, our Japan Hotels have completed a soft refurbishment of 134 rooms across both hotels in January 2018. Over in Australia, Mercure Perth completed a refurbishment of its 239 rooms in 2017.

In 2017, we transitioned one of the Maldives Resorts, the former Jumeirah Dhevanafushi, to a new operator, AccorHotels. The resort now operates under a temporary name, Dhevanafushi Maldives Luxury Resort. Extensive asset enhancement plans are being finalised for this resort, and will culminate in a full re-branding exercise into a Raffles resort in late 2018. This transition process will lead to sub-optimal revenue contribution until the exercise is completed but is expected to augment the longer term prospects for the resort. Refurbishment of 28 land villas is also being planned for our other Maldives Resort, Angsana Velavaru, in the third quarter of 2018 to strengthen the resort's product offering and market positioning. The aforementioned refurbishments are to defend our market share in the face of rising competition from new supply.

At The Lowry Hotel, refurbishment of the Presidential Suite is being planned and there will be also be ongoing enhancements to its public areas to fortify its strong market position in Manchester.

On 22 December 2017, we announced the divestment of Mercure Brisbane and Ibis Brisbane for A$77.0 million, which was completed on 11 January 2018. The sale price translates to an attractive exit yield of 5.3% on the fixed rental, representing a 43.4% premium over the original purchase price of A$53.7 million and a 10.0% premium over the independent valuation of A$70.0 million. The divestment is in line with CDLHT's asset and capital management strategies where we evaluate divestment opportunities periodically to recycle capital for better returns, unlock underlying asset values and achieve greater financial flexibility. We intend to utilise the proceeds from the divestment mainly to repay existing borrowings and part of the gains will also be used to make distributions to Stapled Security Holders in FY 2018.


As at 31 December 2017, CDLHT has a robust balance sheet with a gearing ratio of 32.6% and ample regulatory debt headroom of S$644.1 million. Following the intended use of proceeds from the divestment of our two Brisbane hotels, our gearing ratio will be lowered and this will further strengthen our balance sheet. CDLHT has maintained its rating of BBB- on the Fitch Issuer Default Rating and has a strong interest cover of 7.3 times for FY 2017.

During 2017, CDLHT launched a rights issue to raise gross proceeds of S$255.4 million in June 2017 (completed on 2 August 2017). The proceeds from the rights issue were used to repay existing borrowings. In end 2017, we fully refinanced the bridge loan for the acquisition of The Lowry Hotel and more than 50% of the bridge loan for the acquisition of Pullman Hotel Munich. Our weighted average cost of debt has been lowered to 2.1% while our floating rate risk continues to be well managed with 59.1% of our borrowings being fixed-rate loans.


Sustainability has always been embedded in our way of business. The Managers worked closely with its master lessees and hotel managers, who in turn, integrate elements of sustainability in their operations to add value for our stakeholders and to ensure that the growth of our business would incorporate sustainability efforts.

This year, in line with the newly implemented Sustainability Reporting requirements, we are pleased to present our Sustainability Report for FY 2017 on pages 104 to 112 of this Annual Report. As our business continues to grow, we are fully committed to maintaining our leadership and dedication to the best practices in governance and sustainability for continued long-term growth and enhancement of portfolio value for our stakeholders.


On behalf of the Boards, I would like to thank Mr Wong Hong Ren and Ms Jenny Lim, who have stepped down from the Boards during 2018 and 2017 respectively, and express our heartfelt appreciation for their invaluable contributions over the years. Mr Wong and Ms Lim have provided their experienced leadership since the listing of CDLHT. At the same time, I would like to extend a warm welcome to Ms Cheah Sui Ling, who joined the Boards on 27 July 2017. To my fellow members of the Boards, management and staff of the Managers and the H-REIT Trustee, I have my utmost gratitude for your tireless commitment to the business. I would also like take this opportunity to thank our lessees, hotel operators, business partners and service providers from around the world for your continued support to CDLHT. Finally, I want to thank our Stapled Security Holders for your trust and support.

I look forward to meeting you at our annual general meetings on 27 April 2018.

Vincent Yeo
Chief Executive Officer

  • (1) Total return comprises capital appreciation and assumes distributions paid out during the period from 1 January 2017 to 31 December 2017 are reinvested in the Stapled Securities of CDLHT
  • (2) Ministry of Trade and Industry Singapore, "MTI Expects GDP Growth in 2018 to Moderate but Remain Firm", 14 February 2018
  • (3) For the year ended 31 December 2016, DPS has been restated to reflect the effect of bonus element in the rights issue, arising from exercise price being lower than the market price of the Stapled Securities
  • (4) STB
  • (5) Based on STB, Horwath data (January 2018) and CDLHT research
  • (6) STB Annual Report 2016-17
  • (7) ASEAN Singapore 2018
  • (8) STB, "Singapore tourism sector performance breaks record for the second year running in 2017", 12 February 2018
  • (9) Savills Hotels, Singapore Hotel Market Perspectives, December 2017
  • (10) Japan National Tourism Organization
  • (11) Nikkei Asian Review, "Japan prepares for mass influx of tourists", 11 January 2017
  • (12) Tourism - Statistics New Zealand
  • (13) NZ Herald, "$700m convention centre project and hotel emerges from ground", 10 August 2017
  • (14) Ministry of Tourism, Republic of Maldives, Tourism Monthly Updates
  • (15) International Passenger Survey, Office for National Statistics
  • (16) 2018 Inbound Tourism Forecast - VisitBritain
  • (17) IHS Markit Eurozone Composite PMI, "Eurozone economic growth highest since early-2011", 4 January 2018
  • (18) Muenchen.de
  • (19) Events Eyes
  • (20) Government of UK, "Chancellor on building a Northern Powerhouse", 14 May 2015
  • (21) Including its office and retail components. €98.9 million is the property price of H-REIT's effective interest of 94.5%