CDL Hospitality Trusts - DBS Vickers 2015-09-10: Heading to Cambridge.


Heading to Cambridge 

  • Acquires Cambridge City Hotel for £63.6m (S$137.8m). 
  • Gains exposure to growing high-tech and biomedical hub in Cambridge, UK with upside from hotel rebranding. 
  • FY15-17F DPU lifted by 0.3-2.6%. 
  • Maintain BUY, TP S$1.65. 

Maiden UK acquisition. 

  • CDREIT announced its maiden entry into the UK market with the acquisition of Cambridge City Hotel (CCH) for £63.6m (S$137.8m – inclusive of transaction fees). 
  • Based on the property price of £61.5m, 1H15 proforma annualised NPI yield is c.5.6%. CCH is a 198-room upper upscale hotel located in the heart of Cambridge’s city centre and is one of the few hotels with meeting facilities. The acquisition will be 100% funded with sterling debt (interest of c.2.85%) and is expected to close around Oct 1, 2015. 

Entry into attractive Cambridge market. 

  • Besides the diversification benefits, this acquisition provides exposure to the growing hospitality market in Cambridge. RevPAR for CCH’s competitive set rose 6% y-oy in FY14. Cambridge also has a burgeoning life science cluster which includes the construction of AstraZeneca’s new corporate HQ and global R&D centre. This should lead to higher demand for hotel rooms over time. 
  • Furthermore, CDREIT should benefit from: 
    1. continued improvement in RevPAR which jumped 28.6% y-o-y to £101 in 1H15 as the property was only refurbished in Apr-15, 
    2. additional income from the conversion of under-utilised space into meeting rooms, and 
    3. upside from repositioning the hotel under an international brand. 
  • Based on our estimates, this should translate to a stablised NPI yield of 6-7% and lift our FY15-17F DPU by 0.3-2.6%. 
  • Additionally, we raise our DCF-based TP to S$1.65 from S$1.61. 
  • Meanwhile, FY15F gearing is anticipated to increase to c.35% from c.32%, which is still within CDREIT’s comfortable range. 

Maintain BUY. 

  • While the near term outlook for the Singapore hospitality market is challenging, we believe the risk reward after the recent share price correction is favourable, given CDREIT trades at an implied price per key of c.S$540k which is below replacement cost of c.S$700k and recent market transactions of S$850k-1.85m. 
  • Combined with an attractive yield of 8.4-8.6% yield, and medium term benefits from the CCH acquisition, we reiterate our BUY call.

Mervin SONG CFA | Derek TAN | DBS Securities 2015-09-10
BUY Maintain BUY 1.65 Up 1.61