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 2018 ("FY 2018").


While Singapore's domestic economy and key markets such as US and China saw encouraging growth during 2018, uncertainties due to factors such as ongoing trade tensions and tightening financial conditions continue to persist in the macro environment, with global and domestic growth expected to moderate in the near term (1).

Our focus in FY 2018 was to continue to seek suitable acquisitions, invest in the long-term potential of our assets and create long term value for Stapled Security Holders while maintaining financial discipline.

In November 2018, we expanded our foot print in Europe and secured a presence in Italy through the acquisition of Hotel Cerretani Florence, MGallery by Sofitel. We are pleased that CDLHT has penetrated a highly sought-after hospitality market, thereby augmenting our portfolio and also furthered our strategy of capitalising on the window of opportunity afforded by the low funding environment in Europe. We have unlocked the value of two of our Brisbane hotels with the divestment in January 2018 and have partially recycled these proceeds into this Florence hotel, a high quality asset with excellent location. Coupled with a full year ownership of the two acquisitions we made in Manchester, United Kingdom and Munich, Germany during 2017, our acquisitions have diversified our geographic exposure and supported our income growth.

As we adopt a medium to long term horizon, we continue to seek organic growth through driving overall performance and keeping our hotels competitive through strategic asset enhancement initiatives. We are pleased that our core portfolio Singapore, which constitutes more than 60% of our total portfolio value, is recording improved performance amidst a recovering hotel sector. Our largest Singapore hotel, Orchard Hotel, is currently undergoing a makeover project which will elevate its product offering when the works are completed. In the Maldives, we will also soon launch the first "Raffles" resort in the market.

Net property income ("NPI") for FY 2018 was S$146.1 million, lower by 3.8% as compared to FY 2017, mainly due to the absence of contribution from the two divested Brisbane hotels and the closure of Dhevanafushi Maldives Luxury Resort for major renovations and rebranding into "Raffles Maldives Meradhoo". The New Zealand Hotel also recorded lower contribution due to the absence of significant one-off sporting events which occurred in 2017, and was further affected by a weaker NZD. The decline in NPI was largely mitigated by inorganic contribution from acquisitions made in Europe during 2017 (The Lowry Hotel and Pullman Hotel Munich), as well as higher contribution from the Singapore and Japan properties and Hilton Cambridge City Centre due to better performance.

Total distribution to Stapled Security Holders (after retention for working capital) for FY 2018, which included a partial distribution of the gains from the divestment of the two Brisbane hotels, was S$111.6 million, 1.1% higher year-on-year ("yoy"). We are therefore pleased to deliver total Distribution per Stapled Security ("DPS") of 9.26 cents, 0.4% higher compared to FY 2017.

As at 31 December 2018, CDLHT's portfolio value stands at S$2.78 billion, the highest since our listing in July 2006 and translates to a 10.0% annualised growth rate (2) from IPO. We have also expanded to 16 hotels and two resorts, consisting of 5,088 rooms. Most of our assets have recorded valuation gains in their respective local currency in FY 2018.

With a robust balance sheet and ample debt headroom, we will continue to source for compelling acquisitions and to optimise the potential of our assets so as to enhance our returns to Stapled Security Holders. Should suitable divestment opportunities arise, we will continue to evaluate such avenues to unlock underlying asset values and/or recycle capital for better returns.


We are encouraged by a gradually improving performance in our core market, Singapore, from a confluence of positive demand and supply drivers.

Corporate demand is stable and total tourism arrivals to Singapore grew 6.2% yoy to a new high of 18.5 million in 2018, with almost all of the top ten source markets recording growth (3), underpinned by improved air connectivity and Singapore Tourism Board's ("STB") continued marketing efforts. Key feeder markets such as China, India, Philippines, USA and Vietnam have also reached record highs. Taking into account potential headwinds in the year ahead, STB has forecast visitor arrivals to grow a further 1% to 4% (4) in 2019.

While 2019 will see the absence of biennial city-wide events such as the Singapore Airshow and Food & Hotel Asia, from a longer term perspective, Singapore's status as a top MICE destination is reinforced by the successful hosting of highly notable events such as the ASEAN Ministerial Meetings, Trump-Kim Meeting and Bloomberg New Economy Forum, all of which were attended by prominent leaders.

To drive tourism demand, Singapore continues to invest in aviation infrastructure and tourism attractions. STB has also embarked on various multi-year partnerships. These include an inaugural three-year agreement with William Reed Business Media to anchor a series of five 50 Best events in Singapore, such as the debut of The World's 50 Best Restaurants awards in Singapore in 2019 to highlight our thriving food and beverage ("F&B") scene; as well as a tripartite partnership with Costa Cruises and Changi Airport Group, which is expected to bring in over 100,000 international fly-cruise visitors to Singapore over three years (5). In growing the cruise industry, a 35% increase was recorded in total passenger throughput for 2018.

On the supply front, Singapore hotel inventory is estimated to increase by 1,900 net rooms in 2019 (of which 421 new rooms are in the city centre), representing approximately 2.8% of existing room stock (6). While the trading environment is likely to remain competitive as new hotels that opened in the last 18 months continue to build their market share, the limited future supply pipeline will be supportive of a recovery in the Singapore hotel sector.

In New Zealand, visitor arrivals grew at a healthy pace of 3.5% to 3.9 million in 2018 (7). While there is growing hotel supply in Auckland, tourism demand is healthy with total arrivals being forecast to increase 5.4% yoy for 2019 (8). In addition, Auckland's MICE infrastructure will be strengthened once the construction of the New Zealand International Convention Centre, which is in close proximity to Grand Millennium Auckland, is completed in 2020 (9).

The Perth and Brisbane hospitality markets continue to experience competitive trading conditions from increased supply of new hotels. The defensive lease structure of our Australia Hotels will mitigate any downside risks in the hotels' performance.

Over in Europe, while Brexit uncertainty may continue to pose downside risks to overall demand in the UK and in Manchester and Cambridge, we will also see growth in hotel inventory for these two markets. For Manchester, 2019 will feature events such as the Cricket World Cup and Conservative Party Conference; and for Cambridge, the presence of technology and pharmaceutical headquarters continue to provide base demand in a very competitive environment. For Munich, the hospitality market continues to be well-supported by the city's healthy fair calendar vis-à-vis increasing supply.

In the near term, contribution from the Maldives is expected to be affected by the gestation period of "Raffles Maldives Meradhoo" when it reopens and the competitive trading environment stemming from an increase in new resorts supply (10).

While Maldives' top source market, China, is seeing protracted weakness in arrivals, arrivals from many European feeder markets have been recovering. The government has also announced new steps to maintain a structured growth in tourism, including an increase in 2019 state budget for tourism promotion by approximately three times (11).

Japan continues to record steady growth in visitor arrivals, with an 8.7% yoy increase to a record 31.2 million for 2018 (12). Tourism demand is likely to be spurred by sporting events such as the 2019 Rugby World Cup and the Tokyo 2020 Olympics and Paralympics. In addition, the development of integrated resorts and hosting of the World Expo 2025 in Japan would provide stimulus for further tourism growth. Near term supply concerns in Tokyo have been partially allayed with the contraction in number of Airbnb listings due to new regulations implemented from June 2018 (13).


To deliver sustainable long term returns to Stapled Security Holders, part of our strategy has been to diversify geographically and broaden our earnings base to allow our portfolio to ride through market cycles.

On 27 November 2018, we acquired a 95.0% interest in Hotel Cerretani Florence in Italy for €40.6 million (14). This is a newly renovated, 4-star freehold hotel with 86 rooms which has an exceptional location in the heart of Florence's famed UNESCO-protected historic city centre. Due to new hotel restrictions in the city centre imposed by the Florence City Council, supply growth will likely be limited in the foreseeable future. The acquisition in Italy underlines CDLHT's strategy of exercising investment rigour in securing high quality assets in cities with supply constraints.

The lessee for Hotel Cerretani Florence is affiliated to EVENT Hotels, the largest fully integrated hotel management platform in Germany and also the lessee of our Germany Hotel. The lease structure in place offers both downside protection and upside participation for CDLHT. In addition, the hotel is marketed under the "MGallery by Sofitel" flag under a franchise agreement with AccorHotels, a top leading hotel group.


The Managers constantly review CDLHT's portfolio and continuously identify opportunities to enhance our assets' value and competitiveness through optimising the long term potential of our properties. This in turn improves the quality of our portfolio.

The Singapore hotel sector is moving out of a cyclical trough and we are positioning CDLHT for this recovery. Orchard Hotel has embarked on a refurbishment exercise covering its public area, rooms in the Orchard Wing and meetings and events space. Although this project will disrupt the business of the hotel in FY 2019, we believe the rejuvenated product will improve overall guest experience and allow Orchard Hotel to strengthen its competitive edge amidst various new hotel offerings in the market. Other asset enhancement opportunities in our Singapore Hotels are also being evaluated.

Looking overseas, Dhevanafushi Maldives Luxury Resort's transition programme is underway. We look forward to its relaunch as "Raffles Maldives Meradhoo" later this year. Under the iconic collection of Raffles Hotels and Resorts, the resort will compete at the top end of the Maldives luxury market. Refurbishment works are also being planned for our other Maldives Resort, Angsana Velavaru, to strengthen its product offering to compete more effectively against new supply.

In the UK, the Presidential Suite of The Lowry Hotel was fully renovated and reopened in October 2018. The Presidential Suite is a key feature for the entertainment business segment of the hotel. There are also plans to upgrade the public areas of The Lowry Hotel, which will fortify its position as one of the top hotels in Manchester.

On 11 January 2018, we completed the divestment of Mercure Brisbane and Ibis Brisbane for an attractive exit yield and a 43.4% premium (in local currency terms) over our original purchase price. Having unlocked the underlying value of the assets, we have distributed part of the divestment gains to Stapled Security Holders in FY 2018 and also redeployed part of the proceeds into our new acquisition.


As at 31 December 2018, CDLHT has a robust balance sheet with a gearing ratio of 34.2% and ample regulatory debt headroom of S$577.9 million. CDLHT has maintained its rating of BBB- on the Fitch Issuer Default Rating and has a strong interest cover of 7.1 times for FY 2018.

During 2018, we refinanced the remaining bridge loan initially drawn down for the acquisition of the Germany Hotel and one of our SGD medium term notes, into fixed rate term loans. We also refinanced one of our revolving credit facilities in December. Our weighted average cost of debt continues to be low at 2.4% and our floating rate risk is well managed with 38.4% of our borrowings being floating rate loans. This proportion will further decrease once the bridging facility drawn for the acquisition of Hotel Cerretani Florence is refinanced.


This marks our second year of showcasing our efforts under the Sustainability Reporting requirements and we are pleased to present our Sustainability Report for FY 2018 on pages 108 to 119 of this Annual Report. We increased our engagement with master lessees and hotel managers at CDLHT's assets and have expanded the scope of our report this year to include some of our overseas assets on top of our Singapore Hotels.

As we continue to expand, we are committed to encourage the best Environmental, Social and Governance ("ESG") practices for continued long-term growth and enhancement of portfolio value for our stakeholders.


In the Singapore Governance and Transparency Index 2018 – REIT and Business Trust Category, CDLHT ranked fifth amongst 43 trusts and was also the highest ranked stapled trust, reflecting our ongoing endeavours to ensure and improve transparency of information, proper business practices and sound corporate governance. During 2018, CDLHT also won the "Best Of The Breeds REITs Award for Hospitality REIT (Singapore) – Gold" at The Asia Pacific Best Of The Breeds REITs AwardsTM.

A number of our hotels have continued to be recognised for their product offering and being a preferred choice for travellers in 2018, underlining our assets' quality. For instance, Hua Ting Restaurant at Orchard Hotel received notable accolades such as The Michelin Plate 2018 under The Michelin Guide Singapore and was rated One Star under Wine & Dine Singapore's Top Restaurants. Grand Copthorne Waterfront Hotel was awarded Best Convention Hotel, Singapore and Best Luxury Hotel, Singapore by International Hotel Awards.


Having joined the Boards on 22 June 2018 as Chairman, I am confident that with the Boards' and management team's leadership and wisdom, we are in good stead to forge CDLHT's future successes. I would like to express my deepest gratitude to my fellow members of the Boards, management and staff of the Managers and the H-REIT Trustee for your immeasurable contribution and dedication to CDLHT. On behalf of the Boards and management team, 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 unwavering support.

I look forward to meeting you at our annual general meetings on 29 April 2019.

Chan Soon Hee, Eric

  • (1) Ministry of Trade and Industry, "MTI Maintains 2019 GDP Growth Forecast at "1.5 to 3.5 Per Cent", 15 February 2019
  • (2) CAGR from IPO to 31 December 2018
  • (3) STB
  • (4) STB 2018 Year-in-Review
  • (5) STB, "Costa Cruises Enters Second Tripartite Partnership with Singapore Tourism Board and Changi Airport Group to Grow the Fly", 4 October 2018
  • (6) Based on STB, Horwath data (January 2019) and CDLHT research
  • (7) Statistics – Tourism New Zealand
  • (8) Ministry of Business, Innovation and Employment , New Zealand Tourism Forecasts 2018-2024
  • (9) NZICC, "The NZICC team will be at AIME 2019", 16 January 2019
  • (10) Ministry of Tourism, Republic of Maldives, Tourism Monthly Updates
  • (11) Maldives Insider, "Maldives Seeks Record-Breaking Tourism Performance In 2019", 2 January 2019
  • (12) Japan National Tourism Organization
  • (13) Savills World Research Japan, "Spotlight Japan Hospitality", August 2018
  • (14) €40.6 million is the property price of H-REIT's effective interest of 95.0%