RHB Bank Singapore analyst Vijay Natarajan has again trimmed his target price on CDL Hospitality Trusts to 93 cents from $1 after the REIT’s results for FY2024 ended Dec 31, 2024 missed estimates.
In particular, the analyst notes a “larger-than-expected drop” in revenue per available room (RevPAR) for CDLHT’s Singapore assets in FY2024, and Singapore’s hospitality demand is set to ease in 1QFY2025 with a softer event pipeline.
While Natarajan remains “neutral” on CDLHT, his Jan 31 report represents yet another cut to his target price for the REIT, which has only fallen since September 2023.
Natarajan had issued a “neutral” rating with a $1.25 target price on CDLHT on July 30, 2023, which he later upgraded to “buy” on Sept 5, 2023 with no change to his fair value estimate. Natarajan then gradually trimmed CDLHT’s target price to $1.20 over a year, while maintaining “buy” on the REIT.
After the release of the REIT’s 1HFY2024 results, Natarajan downgraded CDLHT back to “neutral” on Aug 5, 2024 with a large cut to $1.03, commenting that CDLHT’s overseas market “remains a mixed bag, with limited growth potential”.
Natarajan would trim his target price further to $1.03 on Oct 30, 2024 after the release of CDLHT’s 3QFY2024 results, noting a 10% y-o-y decline in Singapore hotel RevPAR during the quarter.
See also: CDLHT’s FY2024 DPS down by 6.7% y-o-y to 5.32 cents due to Manchester BTR project and interest costs
Natarajan’s latest 93-cent target price includes a 2% ESG premium, calculated based on RHB’s proprietary methodology.
‘Muted’ outlook
See also: CDLHT sheds light on potential Liverpool PBSA on vacant plot bought for GBP1
In his latest report, Natarajan says the 2025 outlook for the Singapore hospitality sector “remains muted” due to the absence of large-scale events and supply, along with “softening” visitor spending.
“The REIT’s overseas market outlook remains mixed,” he adds. “Financing cost pressures have peaked and should start to ease in 2HFY2025. With easing demand and interest rate volatility, catalysts are limited and we expect its share price to be rangebound.”
According to Natarajan, the REIT manager has pointed to a “noticeable tightening” in tourist spending here — particularly from China, which accounts for about a fifth of total demand.
Management also highlighted an estimated 5% increase in hotel room supply in the 18 months till Dec 31, 2024.
Against this backdrop, Natarajan is revising his forecasts for CDLHT’s Singapore portfolio to a marginal RevPAR decline in FY2025, compared to a marginal increase previously. “We expect average room rates to decline by 5% in FY2025, while occupancy could slightly inch up to 80% levels.”
Still, Singapore remains CDLHT’s key market, contributing 63% of net property income (NPI) last year. “Overseas, the positive outlook for its Japan, Australia and UK assets is moderated by softness from others,” says Natarajan.
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In total, CDLHT’s portfolio contains six hotels and a retail mall in Singapore; one hotel in Auckland, New Zealand; two hotels in Perth, Australia; two hotels in Tokyo, Japan; two resorts in the Maldives; four hotels, a build-to-rent property and a student accommodation building in the UK; one hotel in Munich, Germany; and one hotel in Florence, Italy.
PBSA entry
In December 2024, CDLHT made its maiden entry into purpose-built student accommodation (PBSA) with the acquisition of Benson Yard in Liverpool, the UK.
The PBSA asset was recently completed and was acquired at a 5% discount to valuation with an entry NPI yield of 5.6%. The fully debt-funded acquisition is expected to be marginally DPU-accretive.
According to Natarajan, potential upside includes a plot of vacant land adjacent to the site, where CDLHT is considering building an additional PBSA block.
The acquisition comes amid its efforts to broaden and diversify its hospitality portfolio into the living segment — the benefits of which are yet to be fully seen, adds the analyst. The REIT’s living segment currently accounts for 7% of total asset value and this could potentially rise to 10%-15% over the medium term.
DPU down 7% y-o-y
CDLHT’s FY2024 distribution per unit (DPU) is down 7% y-o-y due to lower NPI, which fell 2% y-o-y; and higher finance costs, which grew 9% y-o-y.
Overall finance costs fell to 4% as at end-4QFY2024 from 4.4% in end-3QFY2024, and is expected to be lower for FY2025, although the REIT remains exposed to interest rate volatility with only 32% of its debt being fixed, says Natarajan.
Portfolio valuation — on a same-store basis — rose 1.2% y-o-y driven mainly by higher valuations for assets in the UK, Japan and Australia.
Gearing is “on the high side” at 40.7%, says Natarajan, and he sees “limited room” for further fully debt-funded acquisitions.
As at 11am, units in CDLHT are trading 0.5 cents higher, or 0.59% up, at 86 cents on Jan 31.
Tables: RHB, CDLHT
