CDLHT's Maiden Foray Into UK Build-to-rent

• CDL Hospitality Trusts (SGX:J85) has entered into a forward-purchase agreement for The Castings, a build-to-rent (BTR) residential property in Manchester, UK, at GBP73.3m (S$136.0m), and a 5.1% stabilised NPI yield. The deal is accretive; it follows its expanded investment mandate in Jul 2021, and is its first into an adjacent accommodation segment, which we believe is supported by favourable growth fundamentals.
• CDL Hospitality Trusts's RevPAR visibility remains low against an uneven reopening recovery, and we maintain our forecasts, S$1.20 DDM-based target price (COE: 6.5%, LTG: 2.0%), and HOLD rating.
• We prefer Ascott Residence Trust (SGX:HMN) for its long-stay assets, and upside from capital distributions amid slower DPU growth.

Property Well-sited, Expands UK Asset Under Management

• The ~220k sf NLA freehold property in Piccadilly East, a developing area within 2 km from Manchester’s CBD, is highly accessible, is a 9-min walk to Manchester CDL Hospitality Trusts's announcements.
• The deal is expected to complete in May 2024, and will be CDL Hospitality Trusts’s third UK asset, and its second in Manchester.

Favourable Growth Fundamentals

• The sector is nascent at ~2% of existing residential High Speed 2 railway (in 2040), could support longer term valuation upside.

Deal Accretive, Low Development Risk

• The transaction is on a fixed-cost model, with cashflows managed over the project’s 140-week ~S$444m in debt headroom (at 50% limit).
• With the sector’s recovery into FY22 uneven, we expect CDL Hospitality Trusts's management will look to further diversify away from its traditional hospitality AUM.

Source: Maybank Kim Eng Research - 1 Sep 2021