CDL Hospitality Trusts: Watch for maiden contributions from UK acquisitions
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- Full year FY24 DPU declined 7% y/y to 5.32 scts as Singapore hotels extend RevPAR softness into 4Q24 – DPU in line with estimates
- Expect acquisitions growth (Indigo Exeter, Benson Yard) to offset flattish RevPAR for SG hotels in 2025, W Hotel AEI extended to room upgrades
- Prime beneficiary of rate cuts this year with 34% of loan book to be refinanced in FY25 and low fixed hedge ratio of 32%
- Maintain BUY with lower TP of SGD1.10, yield remains attractive at 6.2% with IR savings an upside to our estimates
CDLHT FY24 results. CDLHT reported 2H24 gross revenue of SGD132.9mn (-4% y/y) with the further normalisation of travel in key markets and ongoing asset enhancement work at two properties. Net property income (NPI) declined 9.0% y/y to SGD68.7mn due to higher operating expenses in the UK and higher interest expenses overall. Distributable income declined 11% y/y to SGD35.4mn, mainly due to negative NPI contribution from The Castings and higher interest costs. 2H24 DPU declined 12% y/y to 2.81 Scts, which translates to a full-year DPU of 5.32 Scts – in line with our estimates.
(+) Top beneficiary of 2025 interest cuts. Gearing remains at a comfortable 40.7% as at 31 Dec 24. Average cost of debt decreased by 40bps q/q to 4.0%, leading to a stable interest coverage ratio (ICR) ratio of 2.30%. CDLHT forecasts flat interest costs for FY25 (currently at 3.0%) but anticipates potential savings, as 34% of its loan book is due for refinancing in 2025 and it has a low fixed-hedge profile of 32%.
(-) Singapore hotel growth remains neutral as supply overhang looms. Singapore’s operational performance in 2H24 extended the RevPAR weakness in 3Q24, with a c.10% y/y decline in both quarters, which is in line with our 2025 thesis for a year of moderation for hotels. 1H24 rates and occupancy saw softness in 2H24, with a 4ppt y/y decline in occupancy to 79% and a 5.5% decline in average daily rate (ADR) to SGD246. RevPAR performance in 2H24 was led by Japan, which continues to captivate tourists, rising 17% y/y. Other key markets in Europe and the Maldives saw growth within the low to mid-single digit range y/y, while New Zealand saw a 11% y/y decline in RevPAR due to ongoing refurbishment work at Grand Millenium Auckland that resulted in a 20% decline in room inventory for the most part of 2H24.
(-/+) Growth to be led by AEI completions in AU/NZ; W Hotel to renovate rooms in 2025. Going into 2025, we expect RevPAR growth to be flat across the portfolio, with a marginal increase in overseas markets to mitigate flattish growth for SG assets. CDLHT will be extending AEI efforts at W Hotel Sentosa to include room upgrades. The AEI work is expected to cost SGD30mn and is planned for completion by 3Q25, in time for the peak travel season in Singapore. We anticipate overseas markets to drive portfolio growth, due to (i) the completion of AEIs at Grand Millenium NZ (completed) and Ibis Perth (to be completed in Feb 25), (ii) incremental contribution from UK due to acquisitions and The Castings surpassing financing and operating break even, and (iii) corporate upside in NZ (from opening of new convention centre near CDLHT’s property) and a strong sporting calendar in the UK. We remain cautiously optimistic about potential interest cost savings on a y/y basis as CDLHT’s interest cost trends downwards from a peak of 4.4% in 3Q24.
Maintain BUY with lower TP of SGD1.10. We priced in (i) a flat interest rate outlook going into FY25, (ii) maiden contributions from Hotel Indigo Exeter and Benson Yard and stabilisation of The Casting Hotel at 85% occupancy for the full year of 2025, (iii) a slight impact on occupancy at W Hotel due to room upgrades, and (iv) softer RevPAR growth for hotels in FY25 (low single-digit positive to low single-digit negative). Maintain BUY on lower TP of SGD1.10 (previously SGD1.20), taking into reference the 5.0% target yield on our FY25F DPU estimate of 5.3 Scts.
Interim Income Statement (SGDmn)
FY Dec | 2H2023 | 1H2024 | 2H2024 | % chg y/y | % chg h/h |
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Gross revenue | 138 | 127 | 133 | (3.9) | 4.4 |
Property expenses | (62.9) | (60.8) | (64.2) | 2.1 | 5.6 |
Net Property Income | 75.5 | 66.5 | 68.7 | (9.0) | 3.2 |
Other Operating expenses | (21.7) | (22.2) | (23.8) | 9.5 | 6.9 |
Other Non Opg (Exp)/Inc | 0.0 | 0.0 | 0.0 | - | - |
Associates & JV Inc | 0.0 | 0.0 | 0.0 | - | - |
Net Interest (Exp)/Inc | (31.8) | (29.9) | (38.3) | (20.3) | (28.0) |
Exceptional Gain/(Loss) | 0.0 | 0.0 | 0.0 | - | - |
Net Income | 21.9 | 14.4 | 6.61 | (69.8) | (54.0) |
Tax | (13.8) | (2.9) | (3.3) | (76.3) | 12.7 |
Minority Interest | (0.6) | (0.2) | (0.4) | 36.9 | 58.0 |
Net Income after Tax | 7.57 | 11.3 | 2.99 | (60.5) | (73.4) |
Total Return | 0.0 | 0.0 | 0.0 | - | - |
Non-tax deductible Items | 0.0 | 0.0 | 35.9 | - | nm |
Net Inc available for Dist. | 30.2 | 38.7 | 30.3 | 0.6 | (21.6) |
Ratio (%) |
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Net Prop Inc Margin | 54.5 | 52.2 | 51.7 |
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Dist. Payout Ratio | 90.0 | 90.0 | 90.0 |
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Source of all data: Company, DBS
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