Amid a surge in net property income (NPI) by CDL Hospitality Trusts (CDLHT), the hotel REIT faces a lumpy recovery across its eight markets and sizeable floating rate debt denominated in a weakening British pound.
CDLHT is a stapled group comprising CDL Hospitality Real Estate Investment Trust and CDL Hospitality Business Trust. For 3QFY20222 ended September, CDLHT’s gross revenue increased 46.4% y-o-y to $58.5 million, with $31.8 million contributed by its hotels in Singapore.
With the improved revenue, NPI increased 54.4% y-o-y to $31.6 million for the quarter. However, this was offset by lower NPI from its only New Zealand hotel, which declined by $4.7 million y-o-y after its exit from the government isolation programme.
CDLHT says the overall improvement in the quarter reflected the robust growth in global travel following the loosening of Covid-19 travel restrictions. “The pace of recovery varies but remains bolstered strongly by leisure demand, the return of citywide events and corporate group travel,” reads an Oct 28 statement.
By geography, revenue per available room (RevPAR) from CDLHT’s Australia and Italy properties gained the most y-o-y, up 233.5% and 245.3%, respectively.
Compared to RevPAR at 3QFY2022, CDLHT’s Singapore, Australia, Maldives, UK, Germany and Italy markets have recovered above pre-Covid-19 levels.
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New Zealand and Japan lagged in their recovery, impeded by slower border re-openings.
However, these figures could reflect outsized representation with just one to three hotels in each of its overseas markets. CDLHT’s Germany RevPAR for 3QFY2022, for example, has surpassed pre-pandemic levels, reaching EUR129 ($181.32) for the quarter compared to EUR117 in 3QFY2019.
CDLHT says this improvement is backed by a strong return of project-based corporate travel, leisure demand and a robust events calendar. But just one hotel — the Pullman Hotel Munich — represents CDLHT’s entire Germany exposure.
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The same can be said for its sole property in Italy, Hotel Cerretani Firenze MGallery, where RevPAR of EUR194 for 3QFY2022 bests the EUR179 reported three years ago.
CDLHT owns two resorts in Maldives — Angsana Velavaru and Raffles Maldives Meradhoo. CDLHT’s CEO Vincent Yeo says the conflict in Ukraine has stunted Russian tourist inflow to the South Asian nation. “We traditionally get a lot of Russian demand in the Maldives. Since the Ukraine war broke out, Ukrainian business has disappeared completely. But the Russian business continued; [Russian flag carrier] Aeroflot increased the number of flights to the Maldives because the Russians can’t fly too many other destinations.”
When Russia mobilised its citizens in September, however, the Maldives resorts reported a “softening” in demand. Yeo adds that the portfolio’s other properties are “not dependent” on Russian travellers.
CDLHT has six hotels in Singapore — its most concentrated market — with one still in use as an isolation facility. Singapore remains dominant in CDLHT’s portfolio, contributing $22.6 million, or 71.4%, of the quarter’s $31.6 million in NPI.
As at Sept 30, CDLHT has a weighted average debt-to-maturity of 1.7 years and a gearing of 39.4%. Singapore dollar borrowings made up the lion’s share of CDLHT’s debt currency profile, at 38.5%.
CDLHT’s debt in British pounds placed second at 21.9%, while its borrowings in euros placed third at 21.1%.
As a blended total, 35.6% of CDLHT’s debt is on a floating interest rate basis. CDLHT’s chief financial officer Annie Gan highlights debt in two key currencies: “The one that keeps me awake is the British pound loans. The other one is the Singdollar. The rest are not a lot in terms of absolute quantum.”
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Floating debt in Singdollar, pounds
Compared to a total debt value of some $1.09 billion as at Sept 30, CDLHT’s term loans in British pounds total GBP104 million, or $169 million at exchange rates. As at Oct 31, the same sum equals roughly $170.12 million.
In 3QFY2022, CDLHT refinanced an existing GBP50 million term loan facility, and “documentation is underway” for a remaining $193 million in debt maturing towards the end of the year.
Of this, a $109.3 million term loan fixed via euro and US dollar cross-currency swap is due in November, while a $83.6 million fixed-term loan in pounds is due in December.
CDLHT entered into three fixed-rate interest rate swaps to manage interest rate risks during the year. In addition, proceeds from previous divestments amounting to GBP18.8 million were partially used to pare down the British pound borrowings.
Looking ahead, CDLHT has some $233 million in debt due in 2023 and $336 million due in 2024.
RHB Group Research analyst Vijay Natarajan cites interest costs and exchange rates as critical risks for CDLHT.
“CDLHT has a high proportion of debt, [some] $426 million due for refinancing in 4QFY2022 to FY2023, which is likely to be refinanced at 150 bps (basis points) to 250 bps higher than the current average interest cost of 2.5%,” he writes in an Oct 31 note, where he maintains “neutral” on the REIT with a lower target price of $1.15 from $1.30 previously.
CDLHT has 64% of its debt currently fixed. “This is on the lower side compared to peers, and the proportion is likely to be further lowered post-refinancing,” says Natarajan. “About 20% of its 3QFY2022 NPI is derived in British pounds, Japanese yen and euro, which have depreciated significantly since the start of the year.”
Acquisitions and diversification
CDLHT also has in its portfolio Claymore Connect, a retail mall adjoining Orchard Hotel. In August 2021, CDLHT diversified into the build-to-rent (BTR) sector, with a project in the UK city of Manchester slated for completion in 2024.
On further acquisitions in CDLHT’s single-asset markets like Germany, Yeo tells The Edge Singapore: “We like hotels in Germany… We’re still open to hotel investments, student accommodation, and BTR projects, but not so much looking to expand into retail.”
“The challenge is a high-interest rate environment, where the euro borrowing costs have also increased. But we would also be looking to expand as the opportunity arises.”
CDLHT will disclose its Scope 1 and 2 emissions by property in its FY2022 sustainability report to be released next year — a first for the REIT. It will also set Science-Based Targets by 2024.
Gan says CDLHT is still exploring the option of green loans. “Sustainability or green loans come with quite a lot of criteria. We are exploring with the banks to see whether some can be extended to fund some of our green initiatives.”
