CDL Hospitality Trusts - Maybank Kim Eng 2019-11-21: Well-Structured Asset Swap


CDL Hospitality Trusts - Well-Structured Asset Swap

Positioning for the longer term, BUY, top pick

Divests Novotel Clarke Quay, forward purchases new hotel at 5.6% stabilised yield

  • CDL Hospitality Trusts will
    1. divest Novotel Clarke Quay for SGD375.9m to the City Developments (SGX:C09)-CapitaLand (SGX:C31) consortium owning Liang Court, at an 87% premium to its SGD201.0m purchase price in 2007, 12.9% above its end-Dec 2018 valuation and 1.5-2.0% above independent valuations as at 15 Oct 2019, and
    2. acquire the new hotel at the lower of the fixed price of SGD475.0m or 110.0% of its development costs.
    3. Management expects to realise a 5.6% NPI yield on both its divestment and acquisition achieved on a stabilised basis, to result in a 2.0% DPU accretion (pro-forma).
    4. The property has a remaining 57-year land lease and likely requires significant capex/ AEI. It is well located within the Singapore River precinct; Clarke Quay is a popular tourist/ entertainment area with limited new hotel supply, and it is accessible and well-connected to two major MRT lines.
    5. A forward purchase of the new hotel on a fresh 99-year lease term, with a cap on development costs before its completion in 2025, will enable CDL Hospitality Trusts to maintain its hospitality presence in this prime location, while mitigating near-term execution risks.
    6. See also 

    Acquires W Sentosa at 3.1% NPI yield

    • The acquisition of W Sentosa for SGD324m at 3.1% NPI yield/ SGD1.35m per key from its sponsor is in line with the market and should partially offset lower distributions due to its Novotel Clarke Quay divestment.
    • With this purchase, CDL Hospitality Trusts' Singapore AUM remains steady at 62%, while its NPI contribution rises from 53% to 57%.
    • Near-term RevPAR growth is likely to be capped by new supply on Sentosa (~840 rooms in 2019) but Singapore’s on-going leisure tourism initiatives should support longer-term growth prospects.
    • Management expects a +0.9% DPU accretion on a standalone basis for the deal, assuming a fully debt-funded transaction (at 2.44% funding cost). See CDL Hospitality Trust Dividend History.
    • On a standalone basis, CDL Hospitality Trusts’s leverage would rise from 36.3% to 42.3%, but improves to 35.3% following the Novotel Clarke Quay divestment. This leaves SGD512.7m in debt headroom, at a 45% leverage limit.

    Chua Su Tye Maybank Kim Eng Research | 2019-11-21
    SGX Stock Analyst Report BUY MAINTAIN BUY 1.800 SAME 1.800