CGS-CIMB analysts Eing Kar Mei and Lock Mun Yee are reiterating their “add” call on CDL Hospitality Trust (CDLHT) with the same target price of $1.16.
See: CDL Hospitality Trusts divests Novotel Brisbane for $66.4 million
The rating comes on the same day after CDLHT announced its divestment of Novotel Brisbane for A$67.9 million ($66.4 million).
The divestment consideration is 6.9% above the independent valuation of A$67.5m.
“While it is at a 7% discount to the property’s book value of A$73m on Dec 31, 2019, the valuation does not take into account the impact of Covid-19 on the property’s performance,” they write in a report dated Oct 21.
“The exit yield works out to be 7.3%, and the property value of A$67.9m is 7.5% lower vs. pre-Covid 19,” they add.
Eing and Lock consider the divestment to be a “good move amid uncertainties”.
“While an exit yield of 7.3% appears relatively high, we understand that the yield based on the property’s underlying performance would be much lower,” they note, adding that the property’s underlying performance was affected by strong supply in the past few years.
According to Colliers, Brisbane’s hotel occupancy and its average daily rate declined from 2012 to 2015 before stabilising from 2016 due to the strong supply. As it is, the city is still facing challenges from Covid-19 and more supply will be coming onstream in the next few years.
“The disposal came at an opportune time as the fixed rent lease will expire in Apr 2021, which we think is unlikely to be renewed on a fixed rent basis. The buyer is a reputable Thai hotel chain, which already has a presence in Australia and is likely to operate the hotel under its own brand name,” say the analysts.
“Aside from the hotel’s strategic location, we believe that the expiring master lease could be one of the factors adding to the hotel’s appeal,” they add.
“While the outlook remains uncertain with patches of good and negative news, the share price is currently trading at 0.7x FY20 P/BV, which has priced in about 20% asset devaluation. Re-rating catalysts/downside risks include sooner-/slower-than-expected distribution of vaccines.”
As at 4.49pm, units in CDLHT are trading 1 cent lower or 1.0% down at $1.04.
