Date of Report: October 30, 2024
Broker Name: Maybank Research Pte Ltd
Overview of CDL Hospitality Trusts (CDREIT SP)
CDL Hospitality Trusts (CDREIT) is the first listed hospitality trust in Singapore, focusing on income-producing real estate within the hospitality and lodging sectors. CDREIT’s portfolio includes 19 properties valued at approximately SGD 2.9 billion, with 4,821 rooms, a mall, and a build-to-rent project with 352 units. Its primary markets are Singapore, the United Kingdom, Germany, Australia, and Japan. The trust’s sponsor, Millennium & Copthorne Hotels, operates over 130 hotels globally, while its parent company, City Developments Ltd, is one of Singapore’s largest developers.
Recent Financial Performance
In 3Q24, CDL Hospitality Trusts reported:
- Gross Revenue: SGD 67.5 million, a 3.7% year-over-year (YoY) decline.
- Net Property Income (NPI): SGD 36.3 million, a 6.8% YoY decline, attributed to a high base in the prior year, increased supply, and higher expenses.
For the first nine months of FY24, CDL Hospitality Trusts recorded:
- Revenue: SGD 194.8 million (+2.9% YoY).
- NPI: SGD 102.9 million (+1.0% YoY).
Regional Performance Highlights
- Singapore: Accounts for 63% of 9M NPI. RevPAR for 3Q was SGD 214 (-10.3% YoY), driven by lower room rates and occupancy. Visitor arrivals rose by 14% YoY, though the impact on RevPAR was limited due to increased room supply and short booking visibility.
- United Kingdom: Flat RevPAR due to a balance between corporate demand and fewer leisure events; 3Q NPI declined by 8.8% YoY.
- Germany: 3Q RevPAR rose by 12.4% due to event-driven demand, with NPI increasing by 1.8% YoY.
- Australia and Japan: Demonstrated robust growth in both RevPAR and NPI.
Financial Metrics and Projections
- Gearing: Increased to 38.8% in 3Q from 37.7% in 2Q.
- Debt Costs: Averaged 4.4% in 3Q, up by 20 basis points. Projected debt costs for FY25 are around 4%.
- Dividend Yield and Valuation: Valued at a 6.5% yield for FY25 and 0.6x Price/Book ratio. The trust’s TP (Target Price) has been adjusted to SGD 1.10, down from SGD 1.15.
Investment Highlights and Strategy
CDL Hospitality Trusts is strategically positioned to benefit from projected interest rate cuts, expected to lower borrowing costs. The trust focuses on smaller acquisitions in high-yielding tertiary markets to drive growth. With a hedging ratio of only 40.5%, CDREIT stands to gain from future rate reductions. The trust’s master leases provide stability, as they make up about 70% of its revenue sources, allowing resilience despite fluctuations in RevPAR.
Growth and Acquisition Plans
CDL Hospitality Trusts has a leverage ratio of 38.4% with significant debt headroom, enabling acquisitions in high-yield markets. The trust is seeking organic growth from rising visitor arrivals, particularly in Singapore, while recent deals in the UK and Europe contribute additional income streams.
Risks and Challenges
The trust faces several risks, including:
- Interest Rates: A faster-than-expected increase in interest rates could elevate borrowing costs, impacting profitability.
- Macroeconomic Outlook: A downturn in global markets could reduce demand, impacting RevPAR.
- Supply vs. Demand Imbalance: An increase in room supply could impact pricing power.
- Foreign Exchange Volatility: May impact income from overseas assets despite hedging efforts.
Sustainability and ESG Initiatives
CDL Hospitality Trusts has integrated ESG standards into its operations:
- Environmental Certifications: All Singapore hotels have attained at least the BCA Green Mark Gold certification, with some achieving Gold-Plus and Platinum ratings.
- Energy Reduction Goals: Targets include a 5-7% reduction in energy consumption over the next five years and water reduction goals of 2-7%.
- Diversity Initiatives: Includes diversity training and maintaining a 50% gender ratio within its management team. The Hilton Cambridge property is recognized as LGBTQ+ led, underscoring its commitment to inclusivity.
This comprehensive snapshot from the PDF outlines CDL Hospitality Trusts’ key financials, market positioning, and strategic focus on growth through recovery, rate cuts, and acquisitions while maintaining a strong emphasis on ESG integration.
