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

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%.

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.

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 | http://www.ocbcresearch.com/ 2017-05-08

OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 1.51 Up 1.490