CDREIT Overview
Date: October 29, 2024
Broker: CGS International
Performance Summary
CDL Hospitality Trust (CDREIT) reported a mixed performance in its 3Q revenue and net property income (NPI), reflecting a year-over-year decline of 3.7% and 6.8%, respectively. The 9-month period (9M24) showed a slight increase in revenue and NPI of 2.9% and 1.0%, largely driven by markets in Singapore, Australia, Japan, and Germany. Out of the eight geographies covered, seven exceeded 2019 levels in 3Q24, with New Zealand as the sole underperformer.
RevPAR Performance
The RevPAR performance for CDREIT varied across its portfolio in 3Q24, with notable increases in Australia (up 17.5% YoY), Germany (up 12.4% YoY), Japan (up 16.5% YoY), and Maldives (up 12.3% YoY). Conversely, Singapore saw a decline of 10.3% YoY, attributed to lower average daily rates (ADR) and occupancy rates, alongside a high base in 3Q23. Other regions also faced declines, including New Zealand (down 17.2% YoY) and Italy (down 7.4% YoY).
Financial Metrics
The cost of debt increased by 20 basis points quarter-over-quarter to 4.4% as of 3Q24, with gearing inching up from 37.7% in 2Q to 38.8% in 3Q. Management anticipates gearing will reach approximately 39.5% post-acquisition of Hotel Indigo Exeter. The interest coverage ratio (ICR) slightly improved to 2.55x from 2.66x in 1H24.
Recent Acquisition
On October 15, 2024, CDREIT announced the acquisition of Hotel Indigo Exeter and two retail units for £19.4 million (approximately S$33.2 million), equating to about 1.1% of its assets under management (AUM). The property, which features 104 rooms and opened post-renovation in October 2023, is expected to yield a stabilised NPI of approximately 8% by FY26F. Management views the acquisition as an opportunity to enhance operational performance.
Market Outlook
The forecast for FY24 indicates that the cost of debt should remain stable in the low-4% range. Management does not foresee constraints due to the approximately 40% gearing and plans to continue exploring acquisition opportunities, deciding on funding structures on a case-by-case basis. Despite a decline in certain markets, the overall outlook remains positive due to ongoing asset enhancement initiatives and a strong performance in key regions.
Investment Recommendation
CGS International reiterates an “Add” recommendation for CDREIT with a dividend discount model (DDM)-based target price of S$1.16. This suggests a potential upside of 25.4% from the current price of S$0.925. Key risks include lower-than-forecast travel demand impacting occupancy and room rates.
