CDL HOSPITALITY TRUSTS (SGX:J85)
CDL Hospitality Trusts - Recovery Priced In; Keep NEUTRAL
- CDL Hospitality Trusts (SGX:J85)’s 1Q update pointed to an improving outlook for its hotels, as COVID-19 restrictions eased across all its key markets. Its recovery, however, is still expected to be patchy, as China (a key global travel market) remains closed, while war and inflationary pressures are likely to dent demand.
- The positives are mostly priced in, with the stock rebounding 15% year-to-date and trading at slight premium to book value, with a 4.5% yield.
1Q NPI up 22.5% y-o-y but down 16% q-o-q
- CDL Hospitality Trusts's 1Q NPI up 22.5% y-o-y but down 16% q-o-q with a better performance from Maldives, the UK and Singapore offset by lower contributions from New Zealand (NZ), Japan and Italy. RevPAR grew across all markets – save Australia and NZ – in line with easing restrictions, and is expected to pick up further in 2Q.
- Average interest costs rose 10bps to 2.1% post refinancing of its S$200m debt (1Q), with another S$290m due in 2H that should increase overall borrowing costs by 30-40bps. About 63% of its debt is hedged, with every 25bps increase resulting in a 0.1 SG cent (2%) impact on DPU.
- Minimal impact is expected from rising utility charges, due to master lease structures and the possibility of adjusting room rates higher.
Singapore (~63% of its asset value) is bouncing back
- Singapore (~63% of its asset value) is bouncing back with the recent full easing of border restrictions and removal of capacity restrictions on meetings, incentive, conferences and exhibitions (MICE) events. This is positive for the return of the corporate travel segment, which was one of CDL Hospitality Trusts’s key focus areas prior to the pandemic. Two of its six Singapore hotels are still under government contracts which should end by early 3Q. While we expect occupancy rates to remain at 60% levels, room rates should rebound sharply to pre-COVID-19 levels by 2Q.
- Another key market (NZ) hotel is also still under a government contract until end-2Q.
- Meanwhile, its Maldives hotels are recovering, with RevPAR and NPI up 66% y-o-y and 75% y-o-y, but the Russia-Ukraine war may dampen demand somewhat.
- In other markets, the UK remains a bright spot, and Australia should see some recovery in 2H.
Potential S$100m in equity to be raised down the road
- Potential S$100m in equity to be raised by CDL Hospitality Trusts down the road with progressive payments scheduled for its UK build-to-rent asset, which is expected to be complete by early 2024 and move gearing closer to 43% from 40% presently.
- CDL Hospitality Trusts also completed the acquisition of Hotel Brooklyn, Manchester which has a long 59-year balance in fixed rental leases (with inflation adjustment clauses) and NPI yield of 7.4%, boosting income stability.
- Looking ahead, it is looking at a mix of growth plus stable lease assets, and may acquire some sponsor assets, in our view.
We lift FY23-24F DPU by 2%
- We lift FY23-24F DPU forecast for CDL Hospitality Trusts by 2%, factoring in a slightly more optimistic outlook next year. We derive an ESG score of 3.0 (out of 4.0) based on our proprietary in-house methodology. As this is in line with the country median, we applied a 0% premium to our intrinsic fair value.
- See
- Maintain NEUTRAL on CDL Hospitality Trusts with new target price of S$1.30 from S$1.25, 3% downside.
Singapore Research
RHB Securities Research
|
Shekhar Jaiswal
RHB Invest
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https://www.rhbinvest.com.sg/
2022-05-04
SGX Stock
Analyst Report
1.30
UP
1.250
