CDL Hospitality Trusts - RHB Invest 2020-11-02: Rationalising Its Portfolio; Keep BUY


CDL Hospitality Trusts - Rationalising Its Portfolio; Keep BUY

  • While resurgence of COVID-19 in the US, Europe and parts of Asia has derailed hopes of an early global tourism recovery, Singapore has done fairly well so far and has been gradually opening up its borders. Our base case assumption is a recovery in 2H21 with ten vaccines currently in advanced stages.
  • We believe most of the negatives are priced in with a vaccine announcement likely to act as key share price catalyst.
  • Maintain BUY on CDL Hospitality Trusts with an unchanged target price of S$1.25, 26% upside and c.4% yield.

3Q net property income (NPI) down 57% y-o-y, but up 49% q-o-q

  • CDL Hospitality Trusts (SGX:J85)'s 3Q net property income (NPI) down 57% y-o-y, but up 49% q-o-q mainly due to higher contributions from Singapore, New Zealand (demand from isolation business) and European hotels on the back of easing travel restrictions. 4Q outlook for Singapore hotels (c.62% of FY19 income) is set to further improve q-o-q with management seeing a strong staycation demand (especially for newly acquired W hotel) and with four of its remaining five hotels booked by Government as dedicated isolation facilities. The Government contract extends until early 2021 (with an option to terminate early upon notice).
  • The implementation of air-travel bubble with Hong Kong and opening up of borders with China, Vietnam, New Zealand and Brunei is also positive for the Singapore hospitality sector.

Timely divestment of NB; Balance sheet remains in good shape.

  • CDL Hospitality Trusts announced the sale of its Novotel Brisbane (NB), Australia for AUD67.9m (S$ 66.4m). The selling price is at a 7% discount to its book value but a slight (0.5%) premium to its latest valuation. The move is timely in our view as the property’s long fixed income master lease (since its acquisition in 2010) is set to expire in Apr 2021.
  • As at end Sep 2020, CDL Hospitality Trusts's gearing stands comfortable at 36.7% and will be further lowered to c.35% with repayment of borrowings from divestment proceeds. Management noted that acquisition opportunities are limited as hotel prices have held up fairly well despite the current market conditions.

Overseas market update.

  • Management has commenced operator selection process for its two remaining Perth hotels in Australia for which the current leases are set to expire in Apr 2021. These hotels are likely to transition into variable a rent structure from the current mostly fixed rent structure. Raffles Maldives Meradhoo, which was closed temporarily since April, reopened on 1 Oct.
  • The outlook for its European portfolio (UK, Germany and Italy) remains bleak in near-term with re-imposition of lockdowns. These hotels, which accounted for 18% of NPI in 2019, only contributed S$0.07m to NPI in year-to-date Sep 2020.

Earnings changes.

Vijay Natarajan RHB Securities Research | 2020-11-02
SGX Stock Analyst Report BUY MAINTAIN BUY 1.250 SAME 1.250