CDL HOSPITALITY TRUSTS (SGX:J85)
CDL Hospitality Trusts - A Delayed Recovery; Stay NEUTRAL
- CDL Hospitality Trusts (SGX:J85)’s 3Q21 and 9M21 operational numbers are below estimates, as the recovery of the hospitality sector remains patchy across markets. We now expect a meaningful recovery for Singapore’s hospitality sector only in 2023 (vs 2H22 previously).
- As the stock is trading closer to its book value and long-term mean levels, we believe most of the anticipated positive news flow is in the price. Maintain NEUTRAL rating on CDL Hospitality Trusts and target price of S$1.25, 4% upside.
3Q NPI grew 35% y-o-y or 19% q-o-q
- CDL Hospitality Trusts's 3Q NPI grew 35% y-o-y or 19% q-o-q, mainly on higher operating income from its New Zealand, UK and Maldives hotels. In Singapore, five of its six hotels are under government contracts until 1Q22. Staycation demand for W Hotel is healthy (YTD RevPAR up 38%).
- The Government has opened Vaccinated Travel Lanes (VTL) for visitors from selected countries, but we do not expect any meaningful impact for now. Absolute visitor arrivals (cap) remain insignificant vs levels prior to COVID-19. Similarly, its New Zealand hotels remain well-supported, on the back of government contracts for visitor quarantines.
- The performance of its hotels in the UK has improved significantly, on a surge in domestic travel post economic reopening. Its operations in the Maldives are also expected to see a significant improvement, from the gradual reopening of the country’s borders.
Neutral on entry into built-to-rent (BTR) segment.
- In early September, CDL Hospitality Trusts acquired a BTR asset in Manchester in the UK, via a forward funding scheme for a total purchase consideration of GBP73.3m (S$136m). The project should be completed by 2024, and stabilised NPI yield is estimated at 5.1% after 1-2 years of being completed. This assumes an occupancy rate of ~95% and underlying monthly rental rates of GBP1,000-1,200, based on ~2.5% pa rent growth from the current year.
- We are neutral-to-slightly negative on the deal, largely on:
- The DPU drag from interest on progressive payments (~2.5% to 5%) over the next four years, and
- limited DPU accretion of 2.2% (pro-forma FY20) and 1.5% (pro-forma FY19) based on stabilised assumptions.
Equity-raising likely down the road.
- The acquisition will be progressively funded by debt, with pro-forma gearing at ~ 42.3% upon completion (currently 40.3%). We expect equity-raising (S$50-100m) closer to completion of the acquisition, which will make the deal dilutive based on a 60:40 equity/debt mix.
- Also, CDL Hospitality Trusts had earlier entered into a forward purchase agreement on Moxy Singapore Clarke Quay (redevelopment of Novotel Clarke Quay) for S$475m (expected to be completed in 2025), which would also require equity-raising to the tune of S$200-300m.
- We cut FY21-22F DPU forecast for CDL Hospitality Trusts by 10-12% on a slower-than-expected RevPAR recovery and lower COE assumption by 10bps to 8%. Our ESG score of 3.0 is in line with the country median, so no premium or discount has been applied to our intrinsic value.
- See
Vijay Natarajan
RHB Securities Research
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https://www.rhbinvest.com.sg/
2021-11-01
SGX Stock
Analyst Report
1.250
SAME
1.250
