Recent Action - CDL Hospitality Trust

Publish date: Fri, 28 Oct 2016, 05:46 PM

I've had a rather busy week so I didn't update much about the transactions which I've made for this week. I made quite a few of them and I will update them in my next portfolio updates.

I added 7,000 shares of CDL Hospitality Trust at $1.31 after the company announces its third quarter results on Friday morning.

This is something which I've kept in my watchlist for quite some time and failed to get them earlier in the year. Still, I am glad to be able to add them for what I thought to be at a decent valuation.

Since the company has announced its third quarter results, I'd also go through them a bit in this.

The portfolio is highly concentrated in the Singapore market, even though they had ventured out in recent years to various areas such as Maldives, UK and AU in order to diversify their holdings.

It's a bad thing if you have a hospitality assets in Singapore market right now.

Unlike during recessionary periods in 2008 and 2011, where demand for occupancy and hotels was affected, you can see that demand remains strong with the occupancy rate holding between 86% to 90%. With the Singapore dollar getting weaker and the government initiatives towards building a more vibrant tourism industry, this will only get better and I suspect demand will hold up.

The problem the Singapore market is facing right now is on the supply side.

The competitive environment with so many hotels being set up until 2018 will outweigh the demand in the near term. Having said that, I'm secretly hoping that in the mid to longer term the demand will work out well to meet these supply. This is one of the reason I'm putting this under my longer term investment category.

On the overseas market, the UK, AU and Japan portfolio is doing well so I think this is a good diversification towards a purely Singapore concentrated portfolio. It also appears that this is the direction the sponsor is going to take over the next few years based on the strategy they laid out.

The Maldives market is slowing but there's a minimum guaranteed fee to mitigate the drop in income.

Comparison against other hospitality reits

I have to say that among the other hospitality reits listed here, my preference is towards CDLHT than others such as Ascott, Far East Hospitality Trust and OUE Hospitality Trust. I've never delved much into Fraser Hospitality Trust.

I owned a bit of Ascott and I already blogged previously about its shortcomings. Still, I thought it's a good yield play overall if you are not expecting much.

Far East Hospitality Trust and OUE Hospitality Trust have a poor sponsor pipeline and management in my opinion and they've done nothing so far to impress me much yet. Their valuation could appear as "cheap" to the outside eye but do look out for specific lease, agreement and structure. In my opinion, they are Reits that are built more for dumping ground than to increase shareholders' value.

Summary

If you read my previous post on the X + Y + Z Strategy, I would attribute this to a "7-2+5", with +7% being my estimate yield, -2 being my potential capital loss in the short term, and +5% being a valuation which I am hoping it will pay off over the longer run. The danger with this strategy is if I get that last part wrong then I am officially catching a falling knife, but I believe it will not.

CDLHT also has a good bluechip sponsor in CDL and Millenium Copthorne and pipeline in my opinion which I think weigh a huge scoring in my comparison.

CDL HTrust (J85)

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