RHB continues to trim CDLHT target price, citing ‘market challenges’

RHB Bank Singapore analyst Vijay Natarajan has again trimmed his target price on CDL Hospitality Trusts (CDLHT) to 88 cents from 93 cents previously, citing “market challenges” in the hospitality sector here and abroad.

“CDLHT has been impacted by the competitive Singapore hospitality landscape and muted demand outlook. Overseas market contribution has been a mixed bag and impacted by forex volatility,” writes Natarajan in a Sept 24 note, his first on the REIT since Jan 31 this year.

On the positive side, CDLHT will benefit from falling interest rates with slightly more than half its debt on floating terms, adds Natarajan. “While the REIT is trading at a good discount to net asset value (NAV), we see limited catalysts to bridge the NAV gap as overall returns remain sub-par.”

While Natarajan remains “neutral” on CDLHT, his Sept 24 report marks yet another cut to his target price for the REIT, which has only fallen since September 2023, when his target price on CDLHT was $1.25.

Over the quarters, Natarjan has gradually trimmed his target price on CDLHT, citing declining revenue per available room (RevPAR) for the REIT’s Singapore assets. In January, Natarajan trimmed his target price to 93 cents from $1 after the REIT’s results for FY2024 ended Dec 31, 2024 missed estimates.

S’pore hospitality muted

The outlook for Singapore’s hospitality sector “remains muted” in 2H2025, but is set to rebound in 2026, according to Natarajan. CDLHT’s Singapore RevPAR in 1H2025 fell 14% y-o-y, impacted by a strong base effect from last year, subdued corporate demand and increased hotel supply.

The results were also impacted by renovations at W Hotel, which is undergoing phased room renovations, resulting in some 15% of rooms being taken off. Works are expected to be completed by early 2026.

The outlook for 3Q2025 “remains soft” with the Formula 1 Singapore Grand Prix this year being held in October instead of end-September, says Natarajan. “However, we expect a stronger RevPAR recovery in 2026 by 3%-6% with supply tapering off and a stronger event calendar.”

Overseas outlook

RevPAR for the UK, CDLHT’s largest overseas market, declined 2.7% due to softer leisure and corporate activity, partially offset by improving net property income (NPI) margins.

Leasing activity at The Castings, a build-to-rent asset, is picking up and expected to hit a stabilised occupancy of more than 90% by 4Q2025, notes the RHB analyst.

The outlook in Maldives remains challenging due to increased competition. Raffles Maldives Meradhoo will be rebranded as The Halcyon Private Isles Maldives, Autograph Collection from November, in order to strengthen its positioning.

Meanwhile, Grand Millennium Auckland is currently undergoing room renovations to capture the higher demand expected in 2026.

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Italy and Germany hotel performance is set to moderate while Japan remains a bright spot, adds Natarajan.

Softening interest costs

Natrajan says “softening interest costs” provides some cushion with overall cost of debt declining 30 basis points (bps) q-o-q to 3.6% in 2Q2025 amid a sharp fall in the Singapore Overnight Average Rate (Sora). This is expected to continue to decline in 2H2025.

CDLHT’s gearing “remains relatively on the high side”, says Natarajan, at 42% .”The potential divestment of overseas assets at a premium will be a positive share price catalyst.”

Natarajan adds: “We lower FY2025 and FY2026 distribution per unit (DPU) [forecasts] by 12% and 6%, factoring in the lower RevPAR assumptions and adjusting NPI margins.”

As at 3.41pm, units in CDLHT are trading 0.5 cents lower, or 0.61% down, at 81 cents.