CDL Hospitality Trusts (CDLHT) announced that it has entered into a share purchase agreement to acquire 100% of a company which owns Cambridge City Hotel, a newly refurbished hotel in Cambridge, UK. This is CDLHT’s maiden entry into the UK hospitality market and the asset would be owned under CDLHT’s business trust component due to tax reasons. The total acquisition cost works out to be GBP63.6m (~S$137.8m), of which GBP61.5m is the property price (or GBP311k per key).

This transaction would be fully funded via GBPdenominated debt initially and CDLHT’s gearing ratio is expected to increase from 32.0% to 35.8% post completion (estimated 1 Oct 2015). On a pro forma basis, the acquisition translates into an annualised initial NPI yield of 5.6% and provides DPS accretion of 1.9% for 1H15. We see potential for further upside ahead, as management intends to bring in an international operator within the next 1-2 months which may improve the branding of the hotel and boost access to a global customer base.

Morever, a GBP8.2m refurbishment exercise of the asset was just completed in Apr this year and there is room for operations to be further ramped up. Management is targeting a stabilised yield of 6%-7%. We maintain our HOLD rating but will review our S$1.61 fair value estimate on the stock.

Source: OCBC Research - 10 Sep 2015