CGS-CIMB Research analysts Natalie Ong and Lock Mun Yee have maintained their “add” call on CDL Hospitality Trusts J85 (CDLHT) J85 on the back of its robust Singapore and Japan portfolios.
In their June 13 report, the analysts note that the Singapore hospitality sector continues to gain strength, with January to April 2023 mid-tier hotel revenue per available room (RevPAR) at around 117% of 2019 levels, ahead of their previous FY2023 forecast of 107% of 2019 levels.
To this end, the analysts raise their FY2023 Singapore RevPAR projection to $198 or 116% of 2019 levels, in line with the current RevPAR trend that reflects hoteliers’ strong pricing power.
For its FY2023 ended December, the analysts forecast CDLHT to register a y-o-y net property income (NPI) growth of $32.8 million or 26.5%, mainly driven by Singapore and Japan on the back of higher room rates and improving occupancy. This is despite higher manpower and utility costs.
“With 60% of its FY2023 NPI attributed to Singapore hotels, CDLHT is a proxy for the island state’s tourism recovery,” the analysts add.
Based on their forecasts, CDLHT’s revenue is likely to grow by 21.1% y-o-y in FY2023. On top of the favourable market conditions that should support the RevPAR of its existing portfolio, contributions from its new portfolio additions will also support stronger revenue momentum, the analysts say.
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Announced in 2021, contributions from build-to-rent apartment The Castings in the UK will start from 3QFY2024 with a po-forma stabilised yield of 5.1% based on projected cost of $141.9 million.
Citing UK property operator urbanbubble’s 4Q22 Manchester Monitor, the analysts note that Manchester’s residential market registered 20.4% y-o-y growth in rents in December 2022, driven by an acute rental supply shortage. As such, the Ong and Lock believe there is upside potential to yield when The Castings comes online.
Meanwhile, the redevelopment of Moxy Clarke Quay in Singapore was announced in 2019 with the expected completion date of FY2025. The property has a stabilised pro-forma NPI yield of 5.6% based on the maximum purchase consideration of $475 million.
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As strong pricing power and yield management strategies by hoteliers have resulted in room rates trending 9%-27% above pre-Covid levels over the past 12 months, the analysts expect NPI yields to come in at 6%-6.2% when Moxy Clarke Quay turns operational.
“The Castings and Moxy Clarke Quay were expected to deliver a NPI yield-on-cost of 5.1% and 5.6%, respectively. However, strong growth in Manchester rents and Singapore average room rates should translate to better-than-projected NPI yield of 5.5%-6.2%, in our view,” they add.
Ong and Lock have lowered their FY2023 and FY2024 DPU projection by 11.% and 1.7% respectively, while raising the FY2024 DPU by 2.8%. This is on the back of stronger performance from CDLHT’s Singapore and Japan portfolios, lower UK and Germany earnings projections and higher operating expenses due to higher payroll and utilities cost, among others.
CGS-CIMB’s target price has been lowered to $1.54 from $1.58 previously on higher beta and cost of equity assumptions as they factor in more tepid business and consumer spending.
“We continue to like CDLHT for its portfolio that is entrenched in the Singapore hospitality sector, providing FY2023/FY2024 DPU yield of 5.5%/6.6%,” they add.
As at 3.41pm, units in CDLHT are trading 1 cent higher or 0.84% up at $1.20.
