Analysts are largely positive on CDL Hospitality Trusts (CDLHT) on the back of the trust’s growth in its revenues per available room (RevPAR).
CGS-CIMB Research analyst Lock Mun Yee has kept her “add” call on CDLHT, while OCBC Investment Research analyst Chu Peng has also maintained her “buy” call.
In her report dated April 30, Lock has upped her target price to $1.38 from $1.30 as CDLHT’s net property income (NPI) for the 1QFY2022 ended March stood in line with her estimates at 25.5% of her FY2022 forecasts.
For the 1QFY2022 ended March, CDLHT saw revenue grow by 36.1% y-o-y to $46.2 million. The trust’s NPI also improved by 22.5% y-o-y to $24.2 million.
Overall, CDLHT’s RevPAR improved y-o-y across its markets, except Australia and New Zealand.
That said, Lock has observed the uneven recovery across CDLHT’s geographic footprint.
In Singapore, RevPAR rose 40.7% y-o-y to $95 in 1QFY2022, driven by the country’s higher average daily room rate (ADR). RevPAR for Singapore hotels has recovered to approximately 50%-60% of its pre-Covid-19 levels. CDLHT’s management is hopeful that RevPAR for its Singapore hotels will reach 75% of its pre-Covid-19 levels by end of 2022, supported by Singapore and the regional markets’ reopening, as well as the resumption of events and corporate travel.
The better performance in the Maldives was thanks to a surge in tourist arrivals.
In addition, Lock observed that the UK hotels turned in an NPI of $1.8 million as compared to a loss one year ago with a strong uptick in RevPAR, due to a return of major meetings, incentive travel, conferences and exhibitions (MICE) and sporting events as well as maiden contributions of $400,000 from the acquisition of Hotel Brooklyn as previously mentioned.
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For Germany, a higher NPI y-o-y was also delivered due to a low base in 1QFY2021, which included an impairment loss of $1.2 million. Its Italy hotel was operational in 1QFY2022, supported by the gradual return of domestic, inter-Europe and US leisure travel.
However, in light of the Russia-Ukraine conflict in late Feb, business from Russia and Ukraine inbound sources were negatively impacted.
In addition New Zealand reported a 24.4% y-o-y decline in NPI to S$4.9m, on the back of lower RevPAR due to lower room utilisation at the Grand Millennium Auckland, which continued to serve as a managed isolation facility during the quarter as well as lower food and beverage (F&B) revenue.
Following CDLHT’s results, Lock has raised her distribution per unit (DPU) estimates for the FY2022 to FY2024 by 0.35% to 2.89% after factoring in a slightly faster pace of recovery on the back of the relaxation of Covid-19 measures.
“We expect a more sustainable recovery ahead given the resumption in travel. CDLHT’s expanded investment mandate is another catalyst should CDLHT make an acquisition,” she says.
“Downside risk is slower recovery from Covid-19 and lower income top-up,” she adds.
OCBC’s Chu has also increased her target price estimate to $1.45 from $1.30 as she expects the recovery momentum to continue across CDLHT’s markets.
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In addition, she is positive on CDLHT’s prospects as it doesn’t have to worry about the impact of inflationary pressures as well as the rising interest rates. Currently, CDLHT’s properties in most of its markets enjoy fixed rates on their utility costs.
The Hotel Brooklyn, for instance, is on an inflation-adjusted fixed lease, in line with CDLHT’s strategy to acquire assets with more stable income to increase resilience and fixed rental base.
The four-star hotel in Manchester, UK, was acquired by the trust in February 2022.
CDLHT’s utility costs are fixed for most markets till end of this year and management guided that every 10% increase in utility cost will have a $190,000 impact to NPI for the six Singapore hotels.
Given inflationary pressure, management finds it is relatively easier to pass on the higher costs to consumers for its food and beverage business. For the hospitality segment, management is hopeful to pass on the costs to guests through higher ADR, supported by strong pent-up demand and the return of business travellers who tend to be less price sensitive.
DBS Group Research analysts Derek Tan and Geraldine Wong have kept a “buy” rating on CDLHT with an increased target price of $1.55 from $1.40.
The analysts see positives from a multi-year acceleration in RevPAR, driving P/NAV multiples higher, and a 25% CAGR in FY2022-FY2024 DPU.
CDLHT continues to be one of the top beneficiaries of a rebound in tourism demand as Singapore re-opens its borders and countries in the region ease Covid-19 test requirements, Tan and Wong note.
“While staycation demand is expected to remain strong for selected hotels, we see an increased ability for CDLHT to increase its room rates come 2HFY2022 on the back of a return of corporate travellers,” Wong and Tan say. “Its overseas hotels will also benefit from resilient, domestic-driven businesses coupled with an expected boost in international leisure travel demand.”
Moreover, the analysts foresee broadening horizons to an expanded lodging asset class for CDLHT. The pivot towards the built-to-rent (BTR) sector amongst other possible future lodging asset classes highlights management’s strategic intent to seek resilience through diversity and earnings stability Covid-19.
“With a varied demand driver, compared to hospitality assets, we believe that the BTR investments will be value-accretive and complementary to the company’s portfolio,” Tan and Wong say.
As at 2.35pm, units in CDLHT are trading at 3 cents down or 2.22% lower at $1.32 at an FY2022 P/B ratio of 1.03x and dividend yield of 3.78% according to CGS-CIMB’s estimates.
Photo: Samuel Isaac Chua
