CDL Hospitality Trusts - UOB Kay Hian 2021-08-02: 1H21 Diversifying Into Longer Stay Assets For Resiliency

CDL HOSPITALITY TRUSTS (SGX:J85)

CDL Hospitality Trusts - 1H21 Diversifying Into Longer Stay Assets For Resiliency

CDL Hospitality Trusts (SGX:J85)’s 1H21 DPU was below expectations. While NPI was up on a y-o-y basis, DPU dropped 19% y-o-y, mainly given that the NPI increase was from a low base with losses recorded in 1H20, coupled with expenses below the NPI.
Similar to 2H20, CDL Hospitality Trusts should see a top up of distribution in 2H21. The group is also looking to diversify into more resilient lodging assets such as rental housing and student accommodation.

1H21 DPU below expectations. CDL Hospitality Trusts announced 1H21 DPU of S$0.0122 (-19% y-o-y) which forms 24%/23% of our and consensus full-year estimates. Gross revenue and NPI saw an increase of 27% and 30% y-o-y from a low base. New Zealand and Singapore hotels saw demand for accommodation facilities used for isolation purposes, while Maldives also saw higher tourist arrivals from a low base.
On a h-o-h basis, 1H21 revenue was flat whereas NPI slipped slightly (-7% h-o-h). The group also saw lower interest costs (-10% y-o-y) as a result of lower funding costs on the group’s floating rate loans and interest savings from the partial repayment of revolving credit facility.
The increase in NPI did not translate into higher distribution mainly due to the fact that the NPI increase in the UK and Raffles Maldives Meradhoo were from a low base with losses recorded in 1H20, coupled with expenses below the NPI that have to be accounted for.
2H20 saw the top up of distribution of S$20m from partial proceeds of divestment and management noted that any a top up may be similarly considered in 2H21.

Singapore: Still affected by COVID-19 principal investment strategy. CDL Hospitality Trusts also announced the revision of principal investment strategy to include other adjacent accommodation and/or lodging assets such as properties used for rental housing, co-living, student accommodation and senior housing. This aims to increase the resiliency of CDL Hospitality Trusts’s portfolio and enhance income stability. Management noted a preference for rental housing and student accommodation assets, particularly in geographies where it is currently operating in, such as the UK, Australia or Japan. Yield for such assets are noted to be between 4-5%, while acquisition prospects will likely require a deal size of more than S$50m.
Gearing stable. CDL Hospitality Trusts has about S$129.5m cash on its balance sheet and gearing 39.1%, though it would likely inch up if acquisitions are made.

Trim DPU forecasts for 2021. We lower our CDL Hospitality Trusts's DPU Singapore hotels before international travel picks up.

Lifting of travel restrictions in Singapore, and a reduction in COVID-19 infection rates bally.

Lucas Teng UOB Kay Hian Research | Jonathan KOH CFA UOB Kay Hian | https://research.uobkayhian.com/ 2021-08-02

SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.240 SAME 1.240