CDL HOSPITALITY TRUSTS (SGX:J85)
CDL Hospitality Trusts - Weathering The Omicron Variant Wave; Reopening To Resume In 2H22
- Singapore’s border and existing VTLs have been kept open despite the government halving capacity for VTLs by air and land starting 21 Jan 22. CDL Hospitality Trusts (SGX:J85) benefits from stable contributions from Grand Millennium Auckland, which serves as a managed isolation facility. We anticipate a rapid recovery from Hilton Cambridge City Centre and The Lowry Hotel in the UK after they weather the Omicron variant wave in 1Q22.
- Upgrade CDL Hospitality Trusts to BUY.
Contribution from W Hotel boosted by staycation demand.
- W Hotel benefits from buoyant staycation demand as Sentosa Island provides Singaporeans with the closest semblance to an overseas holiday. W Hotel is a popular destination for staycations due to its expansive view of the marina and seafront. We estimate that W Hotel’s RevPAR has rebounded 28% q-o-q to S$221 in 3Q21. We expect further upside with RevPAR increasing 27% q-o-q to S$280 in 4Q21, driven by staycation demand.
- Bumpy transition on the path towards reopening. CDL Hospitality Trusts has five hotels under government contracts to serve as dedicated isolation facilities. Self-isolation and recovery at home has become the default arrangement, including those infected with the Omicron variant and their close contacts. Thus, the government might terminate the contracts for some of the dedicated isolation facilities. The affected hotels have to switch to serving transient corporate and leisure travellers and staycation demand. Nevertheless, there is downside protection as the five hotels are under master leases, which provide minimum fixed rents totalling S$31.4m per year (80% of revenue from the five hotels in 2020).
New Zealand: Staying the course to reopen international borders.
- New Zealand’s government has changed its close proximity to Auckland Conventions, contributed a sizeable 29.6% of NPI in 3Q21.
The UK: Anticipating a rapid recovery after weathering the Omicron variant wave.
- The UK has reopened its international borders by welcoming fully-vaccinated travellers from wave of Omicron variant infections in 1Q22. Recovery should resume in 2Q22, driven by domestic and intra-regional corporate and leisure travel.
Germany: Gradual normalisation after a harsh winter.
- Germany started a one-month partial lockdown on 2 Nov 21 to suppress the latest wave of COVID-19 infections. Although borders exhibitions (MICE) demand in 2022, such as Oktoberfest in Munich during Sep 22.
Delayed but not derailed.
- The Singapore government has established quarantine-free vaccinated travel lanes (VTL) with 24 countries/regions, which accounted for 56% of visitor arrivals pre-COVID-19 during 2019. The existing VTLs have been kept open despite the government scaling down capacity for VTLs by air and land by half starting 21 Jan 22. Besides the pre-departure and on-arrival polymerase chain reaction (PCR) tests, the government has imposed daily antigen rapid tests (ART) for seven consecutive days (unsupervised ARTs on the 2nd, 4th, 5th and 6th days and supervised ARTs at Quick Test Centres on the 3rd and 7th days).
- Reopening and recovery to resume in 2H22. Singapore could have to weather a new wave of Omicron variant infections in 1Q22. We expect the reopening of borders with expansion of capacity for existing VTLs and introduction of new VTLs to resume in 2H22. The anticipated recovery in the hospitality industry in Singapore has been delayed and postponed to 2H22.
Expanded scope of investment strategy.
- CDL Hospitality Trusts has revised its principal investment floor area of 219,600sf. It is located at Piccadilly East, Manchester and near Piccadilly Station, Arndale Shopping Centre and Old Trafford football stadium.
- The Castings will be leased out to individuals and families for periods of one year or more. Management estimated that the transaction is accretive to pro forma 2020 DPU by 2.2% assuming it is fully funded by GBP loans.
Earnings forecast & Recommendation
- We maintain our existing earnings trades at P/NAV of 0.93x, which is 0.3 standard deviation below long-term mean.
- See
- Catalysts:
- Reopening of international borders in Singapore through the expansion of capacity for existing VTLs and introduction of new VTLs.
- Growth of domestic corporate and leisure travel in Germany, Japan, New Zealand and the UK.
- Contributions from yield-accretive acquisitions, including hotels and rental housing.
Lucas Teng
UOB Kay Hian Research
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Jonathan KOH CFA
UOB Kay Hian
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https://research.uobkayhian.com/
2022-01-04
SGX Stock
Analyst Report
1.42
UP
1.240
