CDL Hospitality Trusts Reported Weak 1H21

• CDL Hospitality Trusts (SGX:J85)’s 1H21 DPU at about -19% y-o-y was weaker than expected, with lower Singapore RevPAR. Its properties in Maldives and New Zealand fared better, and with the UK, should see RevPAR recovery gain traction in 2H21.
• Rising vaccination rates suggest better fundamentals, although demand visibility remains low. We have cut DPUs forecast by 8-10% and our DDM-based target price for CDL Hospitality Trusts (COE: 6.5%, LTG: 2.0%) to S$1.20.
• We prefer
  • Ascott Residence Trust (SGX:HMN) for its long-stay assets and upside from capital distributions amid slower DPU growth.
  • Far East Hospitality Trust (SGX:Q5T) for its Singapore-focused AUM and master lease contributions.

Singapore Occupancy Well-cushioned

• CDL Hospitality Trusts's revenue and NPI for its Singapore hotels (excluding W Hotel) fell ~23% y-o-y and ~14% y-o-y in 1H21. This was on the back of weaker RevPAR, that fell ~20% y-o-y to S$60 (or ~10% y-o-y to S$72, including W Hotel), with room rates capped by demand from government contracts for five of its six hotels, which will likely be extended into 3Q21.
• Occupancy at 70.2% (versus 65.9% in 1H20) is well supported with corporate demand likely to improve from 4Q, which will bolster a stronger RevPAR recovery in FY22.

Better Performance in New Zealand, Maldives

• Its overseas hotels were weaker structure from the renewal of its master leases with Accor.
• We expect stronger fundamentals for its UK assets into 2H21.

Expanding Deal Opportunities, or ~3% DPU Upside

• CDL Hospitality Trusts' leverage was maintained at 39.1%, and this suggests a S$595m debt headroom (at 50% limit).
• CDL Hospitality Trusts has expanded its investment mandate and is eyeing growth from build-to-rent and student accommodation assets, likely through third party acquisitions (in Australia, Japan or the UK).
• We estimate that a fully debt-funded S$100m transaction at a 5% NPI yield could add ~3% to CDL Hospitality Trusts's FY22 DPU.

Source: Maybank Kim Eng Research - 30 Jul 2021