RHB Group Research analyst Vijay Natarajan has kept “neutral” on CDL Hospitality Trusts (CDLHT) with an unchanged target price of $1.25.
Natarajan’s Nov 1 report came after the REIT posted its business update for the 3QFY2021 ended September on Oct 29.
For the 3QFY2021, CDLHT’s net property income (NPI) stood 34.8% higher y-o-y at $20.5 million. Revenue for the quarter increased by 32.8% y-o-y to $40 million.
Despite the growth, Natarajan reports that the REIT’s operational numbers for the 3QFY2021 and 9MFY2021 stood below his estimates.
See: CDL Hospitality Trusts’ 3Q21 NPI grow 34.8% y–o-y to $20.5 mil
According to him, this is due to the patchy hospitality recovery for Singapore’s hospitality sector.
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On this, he has cut his distribution per unit (DPU) estimates by 10% to 12% for the FY2021 to FY2022 on a “slower-than-expected revenue per average room (RevPAR) recovery and lower cost on equity (COE) assumption by 10 basis points to 8%”.
To this end, he now expects a “meaningful recovery” for the sector only in 2023, compared to the 2H2022 as previously thought.
“As the stock is trading closer to its book value and long-term mean levels, we believe most of the anticipated positive news flow is in the price,” he writes.
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In August, CDLHT announced that it was pivoting to build-to-rent (BTR) property as it looks into acquiring a piece of land from a developer in Manchester, UK.
To Natarajan, the entry into the BTR segment may see a drag in CDLHT’s DPU from interest on progressive payments over the next four years. The entry will also see limited DPU accretion of 2.2% (pro-forma FY2020) and 1.5% (pro-forma) FY2019 based on stabilized assumptions.
As such, he is “neutral-to-slightly negative” on the deal.
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The acquisition is likely to be funded by debt, in which Natarajan is anticipating equity-raising of $50 million to $100 million closer to the completion of the deal.
“Also, CDLHT had earlier entered into a forward purchase agreement on Moxy Singapore Clarke Quay (redevelopment of Novotel Clarke Quay) for $475 million (expected to be completed in 2025), which would also require equity-raising to the tune of $200 million to $300 million,” he writes.
As at 12.44pm, units in CDLHT are trading 2 cents higher or 1.68% up at $1.21, with an FY2021 P/B of 0.92 times and dividend yield of 3.0%.
Photo: CDLHT
