Analysts are divided on CDL Hospitality Trusts (CDLHT) following the release of its results for FY2022 ended December.
CDLHT is a stapled group comprising CDL Hospitality Real Estate Investment Trust and CDL Hospitality Business Trust.
CDLHT’s 2HFY2022 operational distribution per unit (DPU) grew 75% y-o-y, on a 48% y-o-y growth in net property income (NPI), with six of its eight operating markets recording healthy improvements.
13 of its 17 hotels outperformed pre-pandemic revenue per available room (RevPAR) in 4QFY2022, compared to 4QFY2019.
Portfolio value, on a same-store basis, rose 4.8% y-o-y, driven by a 9% valuation jump in Singapore assets.
While cap rates rose marginally, between 0 and 50 basis points (bps) across markets, the effect was offset by the stronger performance and growth outlook.
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No capital top-ups were made for FY2022, compared to $12.5 million in FY2021 and the guidance is for no additional capital top-ups this year.
RHB remains ‘neutral’ with ‘in line’ results
CDL Hospitality Trusts’ strong 2HFY2022 results were in line with expectations, writes RHB Group Research analyst Vijay Natarajan. “Its outlook is moderated by a mix of slowing economic growth and inflationary pressures, but positive surprise could come from a strong rebound in Chinese tourist arrivals.”
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In a Jan 31 note, Natarajan is maintaining “neutral” on CDLHT with a higher target price of $1.25 from $1.15 previously, which represents a 9% downside from its last traded price of $1.37.
Natarajan thinks the reopening of China is already priced in for CDLHT, with its unit price having risen 25% in the past three months. “It is also most exposed to rising interest rates, due to low hedges and half its debts expiring in FY2023-FY2024.”
Only 56% of CDLHT’s debt is on fixed interest rates, and this is among the lowest among the Singapore REITs (S-REITs), says Natarajan. “Every 100 bps increase in its interest cost could shave DPU by 0.86 cents. In addition, it has 22% and 28% of debt expiring in FY2023 and FY2024, which we expect to be rolled over at interest rates of slightly above 4%. Overall interest costs, as a result, should come in at high 3% levels, compared to 3.5% as of end-December 2022.”
The analyst has tweaked his DPU estimates for FY2023 - FY2024 by 1% and -3% after factoring in the rising interest cost expenses.
DBS lifts TP
Meanwhile, DBS Group Research analysts think CDLHT has reaped “a bountiful harvest”. In a Jan 31 note, analysts Geraldine Wong and Derek Tan are maintaining “buy” on CDLHT with a higher target price of $1.60 from $1.35.
“We see positives from a multi-year acceleration in RevPAR, driving price-to-book (P/B) multiples higher, and a 18% CAGR in FY2022-2024 DPU. CDLHT remains one of the key beneficiaries of a robust tourism outlook in Singapore on the back of China’s re-opening,” write the analysts
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Management remained optimistic on the outlook of its overall portfolio with China’s outbound trajectory with the gradual resumption of flight schedules the key catalyst for stronger numbers to drive operational numbers higher, say Wong and Tan.
Markets that should benefit from higher travel demand include Singapore, Australia and Maldives, they add. “In addition, corporate demand is expected to continue to improve with rates expected to head higher on the back of higher expected frequency.”
DBS’s analysts have refreshed estimates to reflect CDLHT’s outperformance, some 10% above their estimates. “Overall, we maintain our growth trajectory of 15% in RevPAR in 2023, and 10% in 2024. Our DPU estimates are raised by 5%-9%.”
CGS-CIMB agrees
CGS-CIMB Research analysts Lock Mun Yee and Natalie Ong are similarly bullish on CDLHT, maintaining "add" on the REIT with a higher target price of $1.58 from $1.30 in a Feb 1 note.
Gearing improved q-o-q to 36.6% from 39.4% due to a 6.2%, or $163.7 million increase in portfolio attributed to $125 million in revaluation gains, the inclusion of Hotel Brooklyn and construction progress of UK build-to-rent project The Castings.
Capitalisation rates were stable in Singapore, note Lock and Ong, compressed by 75 bps in the Maldives, but expanded by 25 bps and 150 bps in the UK and Australia, respectively.
The 150 bps cap rate expansion in Australia was largely due to the change of valuer, they add.
CDLHT has a debt headroom of $790.4 million and $348.9 million of reserves as at Dec 31, 2022. About 60% of CDLHT’s borrowings are on fixed rate. With 22% of loans up for refinancing in FY2023, management guided that average cost of debt for FY023F could come in at 4%.
"We lift our FY2023-2024 earnings forecasts to factor in a stronger recovery. FY2023F-2024 DPU declines on increased borrowing and operating costs."
Far East Hospitality Trust a better proxy
However, Citi Research analyst Brandon Lee sees muted share price impact ahead for CDLHT, with results roughly in-line with consensus.
In a Jan 31 note, Lee is maintaining “sell” on CDLHT with a target price of $1.15.
While CDLHT sports strong figures owing to the global tourism recovery, Lee sees Far East Hospitality Trust (FEHT) as a better proxy given its 100% domestic exposure, with CDLHT's earnings recovery to be impacted by rising debt cost and weaker foreign currencies.
Lee notes that CDLHT, up 6%, has underperformed S-REITs year-to-date, which is up 7%, “with majority of RevPAR recovery likely already priced in”.
The key upside risks to our target price and investment thesis are a faster-than-expected lifting of border restrictions, faster-than-expected resumption of leisure and corporate travel and lower than anticipated borrowing cost.
Key downside risks include a slowdown in arrivals growth due to weakness in regional economies, prolonged viral outbreaks that curb travel from key source markets and further deterioration in corporate demand, leading to intensified pressure on hotel room rates and other related spending.
A strong Singapore dollar could also impede arrival growth from key regional countries such as Indonesia and Malaysia, adds Lee. “Should any of these risk factors materialise, the shares could deviate from our target price.”
As at 4pm, units in CDLHT are trading 1 cent lower, or 0.73% down, at $1.36.
