• Keep Buy and SGD1.20 TP, 23% upside and c.6% yield. CDL Hospitality Trust’s 1Q operational and financial updates were in line. YoY revenue/available room (RevPAR) rose across all markets, with Singapore, Japan, and Italy leading the charge – this is set to continue for the rest of 2024. Net property income (NPI) growth though was moderated by FX impact and higher operational costs. Financing cost pressures are expected to persist in FY24, but are likely to peak by end of the year. CDREIT is trading at a >30% discount to book value.

• Singapore RevPAR (1Q) jumped 17% YoY, driven mainly by increases in hotel occupancy, which rose 14.2ppts to 82%, while average room rates declined 4% YoY. This was due to the volume strategy adopted by the REIT manager by targeting tour groups. This strategy is consistent with guidance earlier this year that the focus will be on increasing occupancy while holding room rates. Overall visitor arrivals to Singapore have recovered to c.93% of pre-pandemic levels (2019), supported by a strong recovery in Chinese travellers (now standing at 82% of 2019 levels for 1Q24 from c.60% levels last year). We forecast tourist arrivals to reach 85-95% of pre-COVID-19 levels in 2024, ie 16-18m, which betters the Singapore Tourism Board’s expectations of 15-16m. Hotel RevPAR is expected to see a mid-to-high single-digit growth in 2024, mainly from increases in overall occupancy rates.

• UK build-to-rent (BTR) project nearing completion. The Castings (352 units) BTR asset in Manchester is on track for completion by mid-2024. 90% of the total project commitment sum of GBP73.4m has been funded. With favourable demand dynamics for the BTR segment, the project is likely to exceed its initial NPI yield estimate of c.5%. Asset enhancements are also planned for Ibis Perth and Grand Millenium Auckland, with room refurbishments expected to commence in phases from 2Q24.

• Slight cost pressures in overseas portfolio, but RevPAR growth intact. Among overseas markets Japan, Italy, and the Maldives saw healthy double- digit RevPAR growth – this was driven by a healthy influx of visitors resulting in better occupancy levels. NPI contributions from Australia, New Zealand, UK, and Germany did decline – impacted by cost pressures and FX.

• 1Q NPI up 7% YoY, with Singapore, Japan, and Italy driving growth, offsetting declines in New Zealand, Australia, and the UK. 1Q NPI was at 23% of FY24 estimates – we expect a stronger 2H. Financing costs rose 10bps QoQ to 4.3%. It is set to be at mid-4% for FY24 with 51% of rents hedged.

• We have tweaked lower our FY24-25F DPUs by 0-1% by adjusting interest cost. CDREIT’s ESG score of 3.2 (out of 4.0) is a notch above the 3.1 country score. Hence, our TP includes a 2% ESG premium.

Source: RHB Research - 2 May 2024