Analysts from CGS-CIMB Research and DBS Group Research has maintained “add” or “buy” on CDL Hospitality Trusts (CDLHT) while Maybank Kim Eng's analyst has kept “hold” on the REIT following the release of its results for the 1HFY2021.
On July 30, CDLHT reported a 19.2% y-o-y decline in its total distribution per stapled security (DPS) of 1.22 cents for the 1HFY2021 ended June as the group’s portfolio remained impacted by the ongoing Covid-19 pandemic.
See: CDL Hospitality Trusts post 19.2% decline in DPS of 1.22 cents for 1H21
The lower DPS stood below the expectations of all three brokerages.
As recovery across the countries in CDLHT’s portfolio remains uneven, CGS-CIMB analysts Eing Kar Mei and Lock Mun Yee have lowered their DPS estimates for the FY2021 to FY2023 by 15% to 23% due to higher expenses and retained income.
They have also lowered their target price estimate to $1.32 from $1.43 previously.
The analysts have, however, maintained their income top-up forecast of $20 million for the FY2021, which is the same level as that of the FY2020 on CDLHT’s commitment to top up income during the 2HFY2021.
“Despite the disappointing 1HFY2021, we believe the market had expected the recovery volatility. We expect more sustainable recovery ahead given the increasing vaccination rate,” write the analysts.
“The expanded investment mandate is another catalyst should CDLHT make an acquisition,” they add, although potential downside risks to the counter could arise from a slower recovery from Covid-19 and lower-than-expected income top-up.
DBS analysts Geraldine Wong and Derek Tan are slightly more upbeat on CDLHT as they keep their target price of $1.35.
To them, the REIT, which currently trades at a price-to-net asset value (P/NAV) of 0.9 times, -0.5 standard deviation (s.d.) of its mean of 1.0 times, is attractive.
In addition, Wong and Tan believe that CDLHT remains “on track to ride the travel demand recovery in 2021 and beyond”.
“CDLHT trades at an implied average price/room of $0.65 million for its Singapore hotels, which is below replacement cost of $0.75 million/room in Singapore. Investors are essentially getting exposure to the hotel sector at below the cost to rebuild,” they write.
While the current travel standstill will continue to weigh on the REIT’s performance, we should be “near the end of the current ‘shutdown’ as global vaccination rates pick up”.
“CDLHT’s core Singapore hotels have secured a stable source of revenue from the government while overseas hotels in the UK, Europe and Australia are poised to benefit from the rebound in domestic travel, ahead of international borders reopening,” say the analysts.
Given that the re-opening of travel in Singapore has been postponed towards 2022, with the earliest estimate being in September 2021, Wong and Tan have pushed back their revenue per average room (RevPAR) recovery trajectory towards 2022.
“We now project a recovery of 5% in FY2021, 90% in FY2022 and another 30% in FY2023. This has resulted in a cut of 16%-17% to our FY2021-2022 earnings estimates, while FY2023F earnings are bumped up by 3%. Our target price is maintained at S$1.35 as we roll forward valuations.”
That said, the analysts note that they remain ahead of estimates pegged by the consensus as they see CDLHT’s hotels, especially in the Maldives and Singapore capturing pent-up demand for leisure travel.
DBS’s Wong and Tan are also positive on CDLHT’s expansion of its investment mandate to include broader lodging assets such as serviced apartments, rental housing, co-living, student accommodation and more.
The way they see it, “rental cycles for these broader lodging assets are more stable and resilient against economic downcycles and can help to diversify against that within hotels, in our view. Moreover, stability of rents from longer tenancy periods will help to increase income visibility for CDLHT’s overall portfolio, which will better prepare the REIT for the next downturn”.
“With the manager needing to provide a one-month ‘notice’ in its mandate expansion, we could see a deal happening in 2HFY2021, ahead of our market expectations,” they write.
Like the analysts from CGS-CIMB, Maybank Kim Eng analyst Chua Su Tye has lowered his target price on CDLHT to $1.20 from $1.30 as he deems the REIT’s recovery to be slow.
“Rising vaccination rates suggest better fundamentals, although demand visibility remains low,” Chua writes.
On this, Chua has also cut his DPS estimates by 8% to 10%.
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He adds that he prefers Ascott Residence Trust (ART) and Far East Hospitality Trust (FEHT) for its long-stay assets and upside from capital distributions for the former, and for the latter’s Singapore-focused assets under management (AUM) and master lease contributions.
That said, Chua expects CDLHT’s DPS to improve y-o-y in the FY2021 on strong macro conditions and recovery, led by better occupancies and improving RevPARs.
“We estimate about 89% of CDLHT’s FY2021 net property income (NPI) can be attributed to its master leases and hence less responsive to overall RevPAR changes. We estimate for every 1% increase in Singapore RevPAR, FY2020 DPS should increase by 0.4%.”
As at 4.05pm, units in CDLHT are trading 1 cent lower or 0.8% down at $1.19 or 0.9 times P/NAV, according to DBS’s estimates.
Photo: CDLHT
