CDL HOSPITALITY TRUSTS (SGX:J85)
CDL Hospitality Trusts - Happy Days Are Back With More Holidays & Business Trips
- Singapore reopened its international borders in April and will benefit from the Singapore Grand Prix and large-scale MICE events in 2H22. Maldives should see sustained recovery from influx of holidaymakers.
- In the UK, Hilton Cambridge benefits from recovery of business travel while The Lowry Hotel is popular with sports enthusiasts. Newly-acquired Hotel Brooklyn started to contribute in 1Q22.
- Maintain BUY rating on CDL Hospitality Trusts (SGX:J85). Target price: S$1.57.
We see continued recovery for CDL Hospitality Trusts’ hotels in 2H22.
- Outbreak of the Omicron variant had a short-term impact on bookings in January and February but recovery for the hospitality industry has resumed in March.
Singapore: Attraction as the safest and friendliest destination.
- The Vaccinated Travel Framework was launched on 1 Apr 22 and the requirement for pre-departure COVID-19 tests was subsequently abolished on 26 Apr 22. The reopening of international borders led to recovery in visitor arrivals of 43% m-o-m to 294,304 in the month of April, reaching 19% of pre-pandemic levels.
- Hotels benefitted from an increase in bookings from business guests, especially those from Europe and the US. Bookings for function rooms and ballrooms have surged due to the easing of safe distancing measures. Event organisers were placed on waiting lists as demand outweighs supply of venues.
- CDL Hospitality Trusts’s RevPAR for Singapore recovered 41% y-o-y to S$95 in 1Q22. Grandstand and combination tickets for the three-day Formula 1 Singapore Grand Prix in Sep 22 have already sold out. Large scale MICE events, such as World Cities Summit, FHA – Food & Beverage, FIND – Design Fair Asia and The Singapore Business Show, would also attract more visitor arrivals to Singapore in 2H22. The full impact of the reopening of international borders is expected in 2H22.
Maldives: Wholehearted welcome of tourists.
- Tourists are exempted from the mandatory 10-day quarantine required for all international arrivals. Guests have to quarantine at their villas should they test positive for COVID-19 but, as a gesture of goodwill, most resorts will refund the price of the stay in the form of vouchers. Visitor arrivals to Maldives started to improve in Jun 21 and recovered to pre-pandemic levels by Dec 21. RevPAR for Maldives rebounded 66% y-o-y and 27% q-o-q to US$519 in 1Q22.
- CDL Hospitality Trusts completed major refurbishment for all 79 beach villas at Angsana Velavaru in Jul 20 and construction of a new ultra-luxury presidential villa at Raffles Maldives Meradhoo in Dec 20. The enhancements were timely ahead of the recovery in 2H21.
- Maldives is not affected by the Russia-Ukraine war as, according to the World Bank, Russians and Ukrainians accounted for only 16.8% and 2.7% of the 1.3m visitor arrivals in 2021. Maldives is able to attract a high volume of visitors from other source markets, such as Western Europe (UK, Germany and Italy), Middle East and India.
UK: Travel has returned to normality.
- The British government abolished COVID-19 tests and quarantine for vaccinated travellers in Feb 22. The last vestige of COVID-19 related border control was removed in Mar 22 with pre-departure COVID-19 tests no longer required for unvaccinated travellers. According to British Airways, there was strong recovery for premium leisure travel in 1Q22. Business and group travel are also returning. The UK-US corridor would be restored to full capacity in 3Q22.
- RevPAR for the UK eased 21% q-o-q to £86 in 1Q22 due to weakness in January and February. The newly acquired Hotel Brooklyn contributed fixed rent of S$0.4m. Recovery in domestic travel is expected to pick up in 2Q22 due to the slew of public holidays (Easter, Bank Holiday and Jubilee weekend).
CDL Hospitality Trusts has expanded scope of investment strategy.
- CDL Hospitality Trusts has revised its principal investment strategy to include adjacent accommodation/lodging assets, such as rental housing, co-living, student accommodation and senior housing.
- Rental housing includes residential apartment blocks and standalone houses targeting singles, couples and families. These adjacent assets provide stable income streams, which is less susceptible to economic cycles. They have a longer length of stay ranging from a few months to 1-2 years.
First foray into adjacent lodging space.
- CDL Hospitality Trusts has invested in a residential build-to-rent (BTR) project for £73.3m (S$136.0m) in Aug 21. It paid £9.5m for the land. The vendor will redevelop the land into a BTR building The Castings for £63.8m (S$118.4m). CDL Hospitality Trusts will pay £58.2m periodically over the development period and £5.6m after practical completion expected in May 24.
- The freehold 352-unit BTR block has a residential 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.
- The transaction is accretive to pro forma 2020 DPU by 2.2% assuming it is fully funded by GBP loans.
Further expansion of footprint in Manchester.
- CDL Hospitality Trusts has completed the acquisition of 189-room Hotel Brooklyn at 57 & 59 Portland Street, Manchester, UK for £22.8m (S$41.5m) on 22 Feb 22. The 4-star upscale lifestyle hotel was recently opened in Feb 20 and is centrally located near Manchester's CBD. It is in close proximity to Canal Street, which has a variety of cafes, bars and restaurants.
- The hotel is leased to HLD (Manchester) Limited, which is part of Marshall Holdings Limited, from 7 May 21 to 6 May 81 on a full repairing and insuring basis (59 years unexpired). The tenant pays fixed rent of £2.3m per year subject to upward-only rent review based on inflation. NPI yield has improved by 0.4ppt to 7.8% from 7 May 22 due to rent review based on UK’s Retail Price Index (RPI).
- The acquisition is accretive to pro forma 2021 DPU by 1.1%. Exposure to the UK has expanded by 1.6ppt to 10% of AUM.
Expect limited selling pressure on CDL Hospitality Trusts.
- Sponsor City Developments (SGX:C09) has distributed 144.3m CDL Hospitality Trusts units in specie on a pro rata basis to its shareholders valued at 19.1 cents per share. City Developments shareholders will receive 159 existing CDL Hospitality Trusts units for every 1,000 CIT shares.
- The distribution would be made and credited to City Developments shareholders’ accounts on 26 May 22. City Developments has reduced its stake in CDL Hospitality Trusts from 39% to 27%. We expect limited selling pressure on CDL Hospitality Trusts as we are still in the early stages of recovery for the hospitality industry.
CDL Hospitality Trusts - Earnings forecast and recommendation
- We raised our 2022 DPU forecasts for CDL Hospitality Trusts by 9% and 2023 by 8% due to the accelerated pace of recovery in the hospitality industry.
- Maintain BUY. Our target price for CDL Hospitality Trusts of S$1.57 is based on DDM (cost of equity: 6.25% (previous: 6.5%), terminal growth: 1.8%).
- See
- Share price catalysts:
- Reopening of international borders in Singapore. Growth of corporate and leisure travel in Germany, Japan, Maldives, New Zealand and the UK.
- Contributions from yield accretive acquisitions, including hotels and rental housing.
Jonathan KOH CFA
UOB Kay Hian Research
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https://research.uobkayhian.com/
2022-05-26
SGX Stock
Analyst Report
1.57
UP
1.45
