RHB Group Research analyst Vijay Natarajan has remained “neutral” on CDL Hospitality Trusts (CDLHT) with an unchanged target price of $1.25 as he sees the trust’s green shoots as already priced in.
In his report on March 14, Natarajan estimates that the ongoing Russia-Ukraine war is likely to slow down recovery for CDLHT’s Maldives and European portfolio.
According to the analyst, Russia accounted for around 16% of the total visitor arrivals in the Maldives for the first two months of 2022.
“Anecdotally, we also understand that Russians are also among the top spenders and typically stay at luxury and high-end hotel rooms in Maldives where CDLHT hotels are positioned at,” writes Natarajan.
He adds, that the Maldives portfolio was one of CDLHT’s star performers for the FY2021, accounting for 9.4% of its total net property income (NPI).
“Similarly, we believe overseas visitor arrival recovery for markets like Germany and Italy, which comprise [an estimated] 8% of the REIT’s portfolio, could also potentially see some slowdown from the ongoing war.”
See also: Test debug host entity
In addition, visitor arrivals in Singapore for 2022 are expected to remain some 70% to 80% below its pre-Covid-19 figures at four million to six million visitors.
The first half of 2022 is expected to be muted, while the second half of the year is expected to see “much stronger” figures.
The way he sees it, a key near-term challenge for hoteliers during the 2QFY2022 and 3QFY2022 is the “transition period from the ongoing winding down of government contract business and lack of replacement business from overseas visitors”.
See also: Maybank downgrades ComfortDelGro in contrarian call over Addison Lee acquisition worries
On the acquisition of the four-star Hotel Brooklyn in the UK, Natarajan notes that the asset presents an attractive NPI yield of 7.4%, and that it is yield-accretive to CDLHT’s existing portfolio.
With this, the analyst sees the equity raising of $100 million to $150 million likely to take place in 2023.
“The above acquisition will be fully funded by debt and raise gearing to [around] 40%. In addition, CDLHT has progressive payments due for its build-to-rent (BTR) asset [in Manchester, which was purchased in 2021], which upon completion, will move gearing closer to 43%,” he writes. “Thus we expect the REIT to potentially raise equity in 2023 to lower its gearing to less than 40%, which management sees as a comfortable level.”
Despite the unchanged target price, Natarajan has lowered his distribution per unit (DPU) estimates by 4% to 6% for the FY2022 to FY2023 on the back of slower-than-expected revenue per average room (RevPAR) recovery as well as the lower assumption of cost of equity (COE) by 30 basis points (bps).
As at 1.03pm, units in CDLHT are trading 1 cent lower or 0.87% down at $1.14.
Photo: CDLHT
