UOB Kay Hian keeps 'buy' on CDL Hospitality Trusts with lower TP of $1.48

Analyst Jonathan Koh says the REIT will benefit from increased contributions from Grand Copthorne Waterfront Hotel in 2HFY2023.

UOB Kay Hian Research analyst Jonathan Koh has maintained his “buy” call on CDL Hospitality Trusts (CDLHT) J85 with a lower target price of $1.48, down from $1.55 previously.

In his report dated Sept 12, Koh says that the REIT’s six Singapore hotels will benefit from higher occupancies and increased contributions from Grand Copthorne Waterfront Hotel during the seasonally stronger second half of the year.

“Visitor arrivals have picked up since July as Singapore becomes a preferred destination for well-heeled Chinese tourists,” he says, adding that CDLHT will benefit from the continued recovery in Germany and Italy where the REIT also owns properties.

According to Koh, Singapore has become a “preferred destination” for Chinese tourists. Revenue per available room (RevPAR) for the REIT’s six Singapore hotels have increased 20.7% y-o-y to $182 in 2QFY2023 ended June driven by higher room rates, which also increased by 28.5% y-o-y.

For 1HFY2023, the average length of stay in Singapore was 3.9 days or 15% higher than pre-pandemic levels. “We expect continued recovery from Singapore driven by higher occupancies in 2HFY2023 due to an influx of Chinese tourists. Its six hotels in Singapore will also benefit from the healthy line-up of MICE events and concerts,” adds the analyst.

He notes that this recovery would have been more pronounced if not for Grand Copthorne’s undergoing refurbishment and one of CDLHT’s hotels exiting its last government contract in January before continuing “gestation” in 1HFY2023.

Grand Copthorne’s extensive renovation of its 549 rooms was completed in June, which means it will contribute “more meaningfully” in 2HFY2023 as it repositions itself as a leading conference hotel. The bedroom refurbishment removed 34,000 room nights, or 34% of total room nights, from its inventory in 1HFY2023. Meanwhile, its conference facilities were closed from April but have since reopened in July.

Koh points out that room rates at Grand Copthorne have increased by double digits with the pace of bookings for corporate events picking up. The hotel also benefits from the opening of the nearby Havelock MRT station at the end of last year.

Beyond Singapore’s shores, CDLHT’s property in Germany, Pullman Hotel Munich, is also set to benefit from an event calendar that is picking up in 2QFY2023, including Oktoberfest and motor show IAA Mobility in September.

Despite events not yet reaching a full recovery, RevPAR for Germany  has already recovered 40.5% y-o-y in 2QFY2023, driven thus far by corporate travellers and airline crew. Net property income (NPI) was also boosted by variable rent of EUR0.4 million ($0.58 million) in 1HFY2023.


Further south, the REIT’s Hotel Cerretani Firenze in Italy will also benefit from the return of leisure travellers from Asia. RevPAR for Italy in 1HFY2023 grew 66.4% y-o-y and was 33.2% above pre-pandemic levels. Meanwhile, NPI was boosted by variable rent of €1.2 million in 1HFY2023. “Chinese tourists are fond of travelling to Italian cities, including Florence. The tourism industry has almost recovered back to pre-pandemic levels,” says Koh.

In the UK, RevPAR for CDLHT’s hotels increase 10.1% y-o-y to GBP141 ($240), with room rates 13% above pre-pandemic levels in 2QFY2023. However, Hilton Cambridge City Centre and The Lowry Hotel were affected by margin pressures from higher labour costs and the cessation of government Covid-19 business rates relief from 2QFY2022. Its Hotel Brooklyn also provided a full six months contribution in 1HFY2023, with fixed rent increasing 5% to £2.5 million per annum.

CDLHT’s residential build-to-rent project The Castings with 352 units in Manchester is on track for practical completion around mid-2024 and is expected to start contributing from 2HFY2024. “There is strong demand but a supply shortage for rental housing in Manchester. Asking rents have increased 10% to 15% y-o-y for one-bed, two-bed and three-bed units. The average length of stay is one year or more,” says Koh, who estimates that The Casting will contribute 4.4% of CDLHT’s overall NPI in 2H2024.

The analyst notes that the REIT has guided for a slight increase in its cost of debt, which increased 0.3 percentage points q-o-q to 4.1% in 2QFY2023. Aggregate leverage was stable at 37.9% during the period, while about 48% of its borrowings are on fixed interest rates. CDLHT has refinanced a term loan of $120m with a five-year sustainability-linked loan, adds Koh.

All factors considered, the analyst has trimmed his FY2023 dividend per unit (DPU) forecast by 11% due to a seasonally softer 1HFY2023 and the depreciation of the Australian Dollar and the Japanese Yen which have fallen 6.1% and 8.5% against the SGD, respectively.

Still, Koh has maintained “buy” on CDLHT with a lower target price of $1.48 for a projected 2024 distribution yield of 6.6%.

As at 1.45pm, shares in CDLHT were trading 1 cent or 0.95% down at $1.04, representing a dividend yield of 4.84%.

See Also: