• Maintain NEUTRAL, with new SGD1 TP from SGD1.03, 8% upside. CDL Hospitality Trusts’ (3Q) results came in slightly below expectations. Singapore hotel performance was weaker than expected for the quarter and outlook remains muted for 4Q24 and 2025. Overseas market performance remains a mixed bag. Its low debt hedge position will allow it to benefit from rate cuts with effects more likely to become prominent in FY25. While valuation is not expensive, we see limited catalysts with signs of revenue per available room (RevPAR) peaking across markets.

• Singapore Hotel RevPAR declined 10% YoY during 3Q (below our expectations of flat to low single-digit decline) driven by an 8% drop in room rates and 2ppts fall in occupancy. As a result, NPI (3Q) declined 6% but was up by a marginal 2% YTD (9M). Management attributed the weak performance to more late last-minute bookings impacting its room rate strategy and increased hotel supply over the last 15 months (c.5% net additional supply). While Chinese visitors to Singapore have seen a healthy recovery, CDREIT noted that travellers have become more cost sensitive. Outlook for 4Q is slightly better with a flattish YoY performance expected. However, for 2025, we believe RevPAR will see a slight decline due to the absence of some of the large-scale biennial events held this year.

• Acquisition of Hotel Indigo Exeter, UK – a freehold lifestyle 104-key hotel with a retail component – was opened in Oct 2023. CDREIT noted that purchase price of GBP19.4m (c.SGD33.2m) is significantly below the replacement cost in the market and it was a forced sale due to the sellers’ highly leveraged position. It has appointed new asset manager for the asset and expects to ramp up the asset by 2026 with a stabilised yield of c.8%, upon which it should be DPU accretive. Gearing post completion is expected to inch higher to slightly more than 39% (from 38.8% currently).

• The Castings – its maiden residential build-to-rent (BTR) development – was completed in 3Q and has achieved a physical occupancy of 46% as at end 3Q. The asset recorded an NPI loss of SGD0.2m for the quarter as it is still in an early gestation period. However, it managed to achieve a positive NPI in September.

• Average cost of debt increased to 4.4% YTD (9M) up from 4.2% as at 1H24, but we believe it is nearing its peak due to its low fixed rate borrowings at c.41%. Anticipated rate cuts this year and the next should result in finance cost lowering to c.4% levels by 2H25. Utility costs for Singapore are also expected to be c.25% lower next year due to better contracted rates.

• We lower FY24F-25F DPU by 2-3% by adjusting lower our RevPAR assumptions and adjusting finance costs. Our TP includes a 2% ESG premium.

Source: RHB Securities Research - 30 Oct 2024