• Stay NEUTRAL and SGD 1.30 TP, 4% downside. 1H operational numbers were broadly in line. While CDL Hospitality Trusts’ key markets are staging a strong recovery on the back of pent-up demand, we see risks to travel recovery in 2023 from the worsening macroeconomic outlook, inflationary pressures and a drop in pent-up demand. We see limited accretive acquisition opportunities, with gearing at 40% limiting debt headroom. Valuation has priced in the ongoing recovery, in our view, with the stock trading at 1x P/BV.

• 2Q/1H22 NPI rose 55%/38% YoY on the back of a broad-based recovery across all its markets, except NZ, where its hotels are mainly used for government quarantine facilities, with rents paid depending on the actual occupancy. Nine of its 16 hotels have seen Jun 2022 revenue per available room (RevPAR) exceeding pre-pandemic Jun 2019 levels on the back of pent-up demand resulting in strong pricing power. Management guided for a positive 3Q/2H22F outlook based on healthy forward bookings across its key markets – Singapore, Maldives and the UK. It expects asset values to remain largely firm despite rate hikes on the back of healthy demand for hospitality assets post COVID-19.

• Singapore driving recovery (65% of portfolio value), with RevPAR surging 72% YoY, driven by an 85% increase in room rates. The recovery was much stronger in 2Q, post full reopening, resulting in strong pricing power for hoteliers from international travellers and staycation. CDLHT was also able to maintain its margin despite inflationary pressures by increasing prices. For 2H, only one of its six Singapore hotels will remain under government contract, but at a higher contracted rate than last year. Forward bookings as well as Singapore’s healthy event line up indicate a rosy 2H outlook, driven primarily by leisure demand, while management noted that corporate demand (multi-national corporations) remains soft.

• Maldives, the UK and Europe were the bright spots in its overseas portfolio on the back of removal of quarantine restrictions. The impact on tourism from the ongoing Russia-Ukraine war and China’s Zero-Covid policy has been mitigated so far by strong demand from other markets (India, the US, Australia) and strong domestic demand in Europe. On the other hand, Japan hotel performance remained soft on the back of slow and cautious reopening. While 3Q outlook remains largely positive, ongoing economic slowdown and a reduction in pent-up demand are likely to pose risks moving into 4Q.

• Interests costs expected to jump by 50-70bps with c.26% or SGD283m of GBP and EUR loans up for renewal in 2H. 64% of its loans are fixed currently. Overseas income is typically hedged in the 50-80% range.

• We tweak our FY22F-24F DPU by -1 to -2% by adjusting interest costs. CDLHT has an ESG score of 3.0 (out of 4.0) based on our proprietary in- house methodology. As this score is in line with the country median, no premium or discount is applied to our intrinsic TP.

Source: RHB Research - 1 Aug 2022