CDL Hospitality Trusts - OCBC Investment 2017-05-08: Acquisition of luxury hotel in Manchester, UK

CDL Hospitality Trusts - OCBC Investment 2017-05-08: Acquisition of luxury hotel in Manchester, UK CDL HOSPITALITY TRUSTS J85.SI

CDL Hospitality Trusts - Acquisition of luxury hotel in Manchester, UK

  • DPU accretive acquisition.
  • Trading at 6.6% FY17F yield.
  • FV increases to S$1.51.

Acquisition of 5-star luxury hotel in Manchester for GBP 53.8m 

  • CDL Hospitality Trusts (CDLHT) has announced the acquisition of The Lowry Hotel, one of only two 5-star luxury hotels in Manchester, UK for GBP 52.5m (approx. S$94.1m) with a net property income yield of 7.3% for FY16. 
  • The total acquisition cost of GBP 53.8m will be initially funded through a 100% offshore GBP denominated debt financing. 
  • CDLHT’s gearing will increase from 36.8% to around 39.1%.

Asset clocked RevPAR growth of 6.9% YoY in 2016 

  • For 2016, the asset recorded a RevPAR growth of 6.9% YoY due to the strong demand from the corporate and leisure segments. 
  • Going forward, we continue to expect positive RevPAR growth in 2017 given the refurbishment of guest rooms in 2H16. The management is positive on the medium-term prospects of Manchester given its economic strengths, which they consider less vulnerable to the effects of Brexit, as well its positioning as a football and leisure hub.
  • Football-related business is a key part of demand for the asset, as Manchester is home to both Manchester United Football Club and Manchester City Football Club. 
  • Over the weekends when premier league matches are being played, The Lowry Hotel is able to command significantly higher ADR – in our estimate, up to more than double the typical weekday corporate or leisure rate.

DPU accretive acquisition 

  • On a pro forma basis, CDLHT’s FY16 DPU would have been 10.27 S cents instead of 10.00 S cents, a 2.7% increase. Pro forma FY16 NAV per stapled security would be 1.54 S cents instead of 1.55 S cents. 
  • Our cost of equity increases slightly from 7.8% to 7.9% following the increase in gearing. We note that the REIT manager continues to seek opportunistic acquisitions in Europe, given the low cost of funding. 
  • After adjustments, our fair value increases slightly from S$1.49 to S$1.51. As of last Friday’s price, CDLHT is trading at a FY17 dividend yield of 6.6% and looks reasonable against our fair value. 
  • We maintain HOLD on CDLHT with a fair value of S$1.51.

Deborah Ong OCBC Investment | 2017-05-08
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 1.51 Up 1.490