CDL Hospitality Trusts - Maybank Research 2022-07-29: Strengthening RevPAR; A Firmer Recovery In 2Q22

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CDL HOSPITALITY TRUSTS (SGX:J85)

CDL Hospitality Trusts - Strengthening RevPAR; A Firmer Recovery In 2Q22

• CDL Hospitality Trusts (SGX:J85)’s revenue/NPI jumped ~63% y-o-y/c.55% y-o-y and ~13% q-o-q/c.11% q-o-q in 2Q22, on the back of RevPAR recovery, which strengthened further in Singapore ahead of pre-pandemic levels. ADRs grew on pent-up demand, with momentum seen in the coming quarters.
• Demand visibility is improving, with better fundamentals in 2H22. Risk-reward of CDL Hospitality Trusts is favourable in our view, at > 5% FY23E DPU yield and 25% 2-year DPU CAGR, for this hospitality sector recovery S-REIT proxy.

Singapore recovery to strengthen

• CDL Hospitality Trusts's Singapore hotel RevPAR jumped ~99% y-o-y/c.59% q-o-q in 2Q22 to S$151 (vs +41% y-o-y/-11% q-o-q in 1Q22) with three of its six hotels exceeding 2Q19 RevPAR, underpinned by strong demand from leisure and project groups. One remains on an isolation contract (till Jan 2023) at ADR now priced close to market.
• A rebound in tourist arrivals and longer average stays, coupled with a stronger event calendar and improving MICE activity, should support further RevPAR recovery in 2H22. We see better visibility in the coming quarters, and also upside to forecasts.

Overseas NPIs to improve further

• CDL Hospitality Trusts's overseas hotels saw better overall NPI of ~19% y-o-y, as improvements across most markets offset declines in Australia (-18% y-o-y) due to lower occupancies, and New Zealand (-36% y-o-y), from an exit of the isolation programme. Management sees healthy forward bookings from pent-up leisure demand, with RevPAR expected to track pre-pandemic levels in 2H22.
• We expect recovery to gain traction, with a pick-up in corporate demand, Japan’s border opening and contribution from Chinese travellers.

Rates to rise, upside from AUM growth

• CDL Hospitality Trusts's gearing was lower at 39.5% (vs 39.8% at end-Mar 2022), with a S$587m debt headroom (at 50% limit). Its fixed debt has risen to 63.5% (from 61.3% in 4Q21) with borrowing cost rising to 2.3% (from 2.1%), and set to climb.
• We estimate a 50bps rise in interest rates could lower DPUs by ~3%.
• CDL Hospitality Trusts is eyeing AUM growth on build-to-rent and student accommodation assets (in Europe, Japan and Australia), and hotels backed by master leases.
• See
  • CDL Hospitality Trusts's Share Price,
  • CDL Hospitality Trusts's Target Price,
  • CDL Hospitality Trusts's Analyst Reports,
  • CDL Hospitality Trusts's Dividend History,
  • CDL Hospitality Trusts's Announcements,
  • CDL Hospitality Trusts's Latest News.
• Our forecasts and S$1.40 DDM-based target price for CDL Hospitality Trusts (5.9%, LTG: 2.0%) remains unchanged. We see long-haul travel recovery determining its earnings trajectory, with risk on the upside, given better-than-expected pricing power, against rising demand.

Chua Su Tye Maybank Research | https://www.maybank-ke.com.sg/ 2022-07-29

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