SINGAPORE (Nov 4): Analysts from Maybank Kim Eng Research and RHB Group Research are keeping their “buy” recommendations on CDL Hospitality Trusts, despite the REIT stumbling in its recent 3Q19 results.
CDLHT reported distribution per stapled security (DPS) of 2.09 cents for the 3Q19 ended September, some 4.1% lower than DPS of 2.18 cents recorded in 3Q18.
After deducting income retained for working capital, total distribution to stapled securityholders was $25.4 million, down 3.6% from the previous year.
Revenue for the quarter fell 1.8% to $49.1 million, despite full quarter contribution from CDLHT’s Italy hotel acquired in November last year.
See: CDL Hospitality Trusts reports 4.1% decline in 3Q DPS to 2.09 cents on lower revenue
Despite the disappointment, both Maybank and RHB say CDLHT remains their respective top hospitality pick.
The analysts note that CDLHT saw stronger Singapore performance during the quarter.
Singapore hotels saw a turnaround on stronger occupancies and a 4.9% y-o-y RevPAR improvement,” says Maybank analyst Chua Su Tye.
The way Chua sees it, the recovery in Singapore will be driven by easing supply in the hospitality sector.
“We see this recovery gaining traction into 2020 on stronger corporate demand, supported by a constructive supply outlook and DPU visibility from earlier investments in Europe,” Chua adds. “We see upside to DPUs as the sector is recovering after a four-year down-cycle and from a low base.”
Meanwhile, RHB analyst Vijay Natarajan notes that CDLHT’s Singapore hotels in 3Q19 registered the strongest RevPAR growth since 2012.
“CDL Hospitality Trusts remains our preferred hospitality pick,” Natarajan says. “This stock is still one of the most liquid proxies to Singapore’s hospitality sector.”
Natarajan adds that CDLHT’s valuations are reasonably attractive, at 1.1 times price-to-book value (P/BV).
The analyst also believes that acquisitions could provide a potential catalyst for CDLHT in the near term.
“In Singapore, we believe M Social Hotel from its sponsor could be a potential candidate for acquisition in the near term. For Europe, the attractive yield spreads remain the key draw,” says Natarajan. “Gearing stands at a modest 36.3%, and we expect potential acquisitions to be funded via a combination of debt and equity.”
As at 3.26pm, units in CDLHT are trading at 1 cent lower at $1.63. According to RHB valuations, this implies an estimated P/BV of 1.1 times and a dividend yield of 5.7% for FY19F.
