Broker: Maybank Research Pte Ltd
Date of Report: May 2, 2025

CDL Hospitality Trusts Faces Headwinds Amidst Global Travel Uncertainties: Comprehensive Financial and ESG Analysis

Overview: Navigating Challenging Market Conditions

CDL Hospitality Trusts (CDREIT SP), a leading Singapore-listed REIT specializing in hospitality, lodging, and student accommodation assets, is navigating a period of operational and macroeconomic headwinds. The latest business update for 1Q25 reveals a dip in operating metrics, primarily due to lower RevPAR in core markets, adverse currency movements, and ongoing asset enhancements. While the trust remains committed to prudent capital management and is buoyed by recent acquisitions, the outlook remains cautious, with a HOLD rating reaffirmed.

Key Financial Highlights and Performance Metrics

• 1Q25 Revenue: SGD 63.4 million, down 2.8% year-on-year.
• Net Property Income (NPI): SGD 30 million, a 14.2% YoY decline.
• Singapore RevPAR: Fell 15.6% YoY, with both occupancy and room rates declining.
• Gearing: Increased to 41.8% (from 40.7% in 4Q24), but within a comfortable range.
• Cost of Debt: Declined to 3.9% (from 4.0% in 4Q24), with a full-year guidance of 3.5-4%.
• Major Markets: Singapore, Maldives, and the UK contributed 83% of NPI.
• Distribution Yield: Attractive at 6.7% (FY25E), trading at 0.5x FY25E Price-to-Book.

1Q25 Market Performance at a Glance

Strategic Developments and Capital Management

• Recent Acquisitions: Contributions from Hotel Indigo Exeter, Benson Yard, and the newly developed The Castings partially offset operational declines.
• The Castings: Current occupancy at 67.9%, with stabilization targeted at 90%.
• Debt Profile: Gearing remains below the 50% regulatory cap, and cost of debt is on a downward trend.
• Full-Year Outlook: Management expects further support from stabilized asset performance and lower funding costs.

Financial Summary Table

Valuation and Guidance

• CDLHT is valued using a three-stage dividend discount model (CoE: 7.0%).
• Current forecasts and target price (TP) of SGD 0.75 are maintained, pending further clarity on operational and financing trends in the first half of 2025.
• Yield is attractive at 6.7%, but risks from global trade, FX volatility, and macroeconomic uncertainty persist.

Detailed Portfolio Review and Value Proposition

CDL Hospitality Trusts is the first listed hospitality group in Singapore with a diversified portfolio of 19 properties valued at SGD 2.9 billion, comprising 4,821 rooms and a mall, as well as a build-to-rent project with 352 units. The sponsor, Millennium & Copthorne Hotels, operates over 130 hotels globally, supported by parent City Developments, Singapore’s second-largest listed developer.
Portfolio Geographic Breakdown:

• Singapore: 65%
• Australia: 3%
• New Zealand: 8%
• Maldives: 5%
• Japan: 3%
• UK: 8%
• Germany: 6%
• Italy: 2%

Growth Drivers and Strategic Initiatives

• Potential for DPU growth of 11.2% in FY25 and 5.5% in FY26, driven by organic growth in Singapore and rising contributions from UK/Europe assets.
• RevPAR growth forecasted at 3% YoY for FY25/26, with NPI margins expected to remain in the 53%-54% range.
• Borrowing costs projected to fall from 4.4% in FY24 to 3.6% by FY26.
• Lease mix is shifting toward managed contracts, but about 70% of income is from master leases, reducing sensitivity to RevPAR and margin fluctuations.

Risks and Swing Factors

Downside Risks:

• Significant increases in hotel room supply outpacing demand.
• Global macroeconomic deterioration causing RevPAR declines.
• Volatility in foreign exchange rates impacting hedging and DPU estimates.
• Unexpected rises in interest rates increasing cost of debt and lowering valuations.

Upside Swing Factors:

• Earlier-than-expected recovery in corporate travel demand.
• Stronger RevPAR trends than forecasted.
• Accretive acquisitions or value-unlocking divestments.

Environmental, Social, and Governance (ESG) Initiatives

Environmental:

• All Singapore hotels are BCA Green Mark Gold or higher; M Hotel and Orchard Hotel are Gold-Plus, Copthorne King’s and Grand Copthorne Waterfront are Platinum certified.
• Portfolio-wide targets: 5-7% energy reduction and 2-7% water consumption reduction over five years from FY19 baseline.
• Hotel operators follow strict environmental policies (e.g., M&C’s 3% annual energy reduction goal, Accor’s Planet 21, Cambridge’s 52% carbon intensity reduction by 2030).

Governance:

• Externally managed by City Developments subsidiaries, providing a property pipeline and capital market access.
• Board is highly independent, with 5 of 6 members independent; CEO is the only executive/non-independent member.
• Performance fee structure revised in 2016 to align with peers; payout ratio for taxable income consistently above 90%.
• Strong balance sheet, with average leverage of 34% from 2017-21.

Social:

• Employee engagement initiatives, leadership pipeline development, and quarterly anonymous feedback surveys.
• Hilton Cambridge City Centre recognized as the only LGBTQ+-led hotel in Cambridge; all staff trained in diversity and unconscious bias.
• Gender diversity in FY21: 22% of all employees were female, while REIT management maintained 50% female representation.
• Started disclosing employee training metrics by gender in FY21.

Conclusion: Outlook and Recommendation

CDL Hospitality Trusts is experiencing a short-term dip in operating performance due to external headwinds and internal asset enhancement activities. While the trust offers a compelling yield and is trading at an attractive valuation, ongoing risks from global macroeconomic trends, FX volatility, and the pace of recovery in key travel markets warrant a cautious approach. The current HOLD rating and target price of SGD 0.75 are maintained, pending further visibility on operating and financing trends in 1H25.
With a robust portfolio, prudent financial management, and ongoing ESG initiatives, CDLHT remains a key player in the hospitality REIT sector, well-positioned to capitalize on recovery opportunities while managing downside risks.

Contact and Coverage

• Analyst: Krishna Guha, Maybank Research Pte Ltd (krishna.guha@maybank.com)
• Company Description: CDL Hospitality Trusts invests in income-producing real estate primarily for hospitality and lodging, with recent expansion into student accommodation and build-to-rent assets.