CDL Hospitality Trusts - OCBC Investment 2017-06-29: Rights Issue And Acquisition Of Pullman Hotel Munich

CDL HOSPITALITY TRUSTS J85.SI

CDL Hospitality Trusts - Rights Issue And Acquisition Of Pullman Hotel Munich

The managers of CDL Hospitality Trusts (CDLHT) are undertaking an underwritten and renounceable rights issue of 199.5m new stapled securities to raise S$255.4m, at a rights ratio of 20 Rights securities for every 100 existing stapled securities.
The issue price of S$1.280 is at a 23.8% discount to the 27 Jun closing price and 20.7% discount to the TERP.
97.9% of the proceeds will be used to partially repay CDLHT's existing borrowings.
CDLHT’s sponsor has committed to an irrevocable undertaking to subscribe fully for its pro rata rights entitlements, aggregating ~37% of the Rights Issue.

In addition, CDLHT also announced the acquisition of Pullman Hotel Munich and its office and retail components for €98.9m (~S$153.8m) which will be fully funded by debt financing at a FY16 NPI yield of 5.6%.
The asset is an upper upscale hotel with a 4-star rating with 337 keys on freehold land. The pro forma FY16 DPU accretion from the acquisition alone is ~3.8%.

Including the acquisition and rights issue, CDLHT’s FY16 DPU would drop 5.7% from 10.00 S cents (actual) to 9.43 S cents on a pro forma basis.
Similarly, FY16 NAV would drop 3.9% from 1.55 S cents (actual) to 1.49 S cents (pro forma).

After adjusting beta to account for the lower gearing, our cost of equity drops from 7.9% to 7.7%.
As CDLHT will receive less than full-year contributions from its Lowry Hotel and Pullman Hotel Munich acquisitions in FY17, our FY17 DPU forecast of 9.19 S cents is below the FY16 pro forma figure. After taking into account the transactions, our fair value increases from S$1.51 to S$1.52. Do note that our S$1.52 FV is cum-rights while all the other financial figures in this report are ex-rights. Our fair value will drop to S$1.48 after the units go ex-rights on 3 Jul 2017.
Maintain HOLD with a fair value of S$1.52.

Deborah Ong OCBC Investment | http://www.ocbcresearch.com/ 2017-06-29

OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 1.520 Up 1.510