Analysts from five brokerages have given mixed ratings for CDL Hospitality Trusts (CDLHT), with different ratings from CGS-CIMB Research, DBS Group Research, RHB Group Research, Citi Research and UOB Kay Hian.
CGS-CIMB has maintained its “add” rating with a lowered target price of $1.30 from $1.38, with analysts Lock Mun Yee and Natalie Ong explaining that the REIT is seeing “steady progress towards pre-Covid levels.”
They note that CDLHT, in its update for the 3QFY2022 ended September, saw revenue and net property income (NPI) grow 46.4% and 54.4% y-o-y respectively, putting revenue at $58.5 million and NPI at $31.6 million.
Properties in Singapore and Australia were the most significant contributors to NPI improvement, and Wong and Lock noting that 3QFY2022 revenue per available room (RevPAR) in five out of seven of CDLHT’s geographies exceeded 3QFY2019 levels.
This is an improvement from 1HFY2022, where all geographies except the Maldives were performing below 2019 levels.
However, New Zealand and Japan lagged in the recovery in 3QFY2022, impeded by slower border re-openings.
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In Singapore, the analysts say that it was an “exceptionally strong quarter” for CDLHT’s Singapore portfolio, driven by a strong pick-up in MICE events, corporate travel, and the return of the Formula One Grand Prix.
The acronym MICE refers to events like meetings, incentives, conferences, and exhibitions.
NPI from Singapore grew a whopping 153% y-o-y in 3QFY2022, and accounted for 57% of NPI for the quarter.
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Australia and Germany also experienced similar corporate and leisure demand, while Italy’s hotel demand was driven by domestic, intra-Europe and US leisure travel.
DBS Group Research’s Derek Tan and Geraldine Wong have maintained a “buy” call, although it has also trimmed its target price from $1.55 to $1.35.
In their report, the analysts “see positives from a multi-year acceleration in RevPAR driving P/NAV multiples higher, and a 12% CAGR in [their distribution per unit (DPU)] for the FY2022-2024 on lower estimates.”
On the same note, the analysts think that CDLHT is “perched to take flight as corporate travel demand returns,” adding that it continues to be one of the top beneficiaries to ride on “record-high RevPARs” in Singapore since Jun 2022,
This is due to its prime hotels that are well-positioned within both the leisure and corporate travel segments in Singapore.
Furthermore, Wong and Tan note that CDLHT also has diversified into the built-to-rent (BTR) sector, amongst other possible future lodging asset classes, and says that this highlights the management’s strategic intent to build resilience through diversity and earnings stability post-pandemic.
“With varied demand drivers, compared to hospitality assets, we believe the BTR investments will be value accretive and complement the company’s portfolio,” they conclude.
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UOB Kay Hian's Jonathan Koh also maintains his buy call, but trimmed the target price on CDLHT to $1.37 from $1.41, acknowledging the strong Singapore recovery, but explained that the target price was trimmed due to a higher cost of debt and slower recovery in New Zealand.
Despite this, he anticipates a recovery in Japan and Australia, in addition to New Zealand, while Koh notes that the UK has experienced a "sustained recovery".
As for RHB analyst Vijay Natarajan, he maintains a “neutral” call and has dropped his target price from $1.30 to $1.15.
Natarajan says that the portfolio in Europe and the UK saw a strong rebound on the back of pent-up demand, but while the Maldives portfolio saw a y-o-y RevPAR increase, inflationary cost pressures have “started to bite” resulting in higher NPI loss in 3QFY2022.
The portfolio outlook in Maldives and Europe is also impacted by the Russo-Ukraine war, resulting in high inflation and a weak economic outlook. On the other hand, New Zealand and Japan are expected to see improvements in coming quarters with more events and easing of restrictions.
Most importantly, he notes two key risks for CDLHT, namely, interest costs and foreign exchange rates.
CDLHT has a high proportion of debt ($426 million) due for refinancing, with 18%-21% due from 4QFY2022 to FY2023. Natarajan notes that this is likely to be refinanced at 150-250 basis points (bps) higher than the current average interest cost of 2.5%.
64% of its debt is currently fixed, but Natarajan says this “is on the lower side compared to peers” and the proportion is likely to be further lowered post refinancing.
Furthermore, about 20% of CDLHT’s 3QFY2022 NPI is derived in British pounds, Japanese yen and euros which have depreciated significantly since the start of the year.
Natarajan lowers his distribution per unit forecasts for FY2023 and FY2024 by 5%, factoring in higher interest costs and slightly lower margins. He also raises his cost of equity (COE) assumptions by 50 bps on the back of higher interest rates.
Finally, Citi’s Brandon Lee has the most bearish view of CDLHT, handing it a “sell” rating and a target price of $1.15.
While he notes the REIT’s recovery and assets enhancement plans for Singapore’s Grand Copthorne Waterfront Hotel, Lee highlights that “supply growth, increasing inflation, cost pressures and labour constraints represent the main headwinds to stronger performance recovery in the near-term.” As such, he expects a “muted share price reaction” due to global macro-environment uncertainty.
As at 4.07 pm, shares of CDLHT were trading at $1.15, with a FY2022 P/B ratio of 0.86 and dividend yield of 5.22%, according to CGS-CIMB.
