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

CDL Hospitality Trusts: Navigating Headwinds in 2025 – In-Depth Financial and Strategic Review

Overview: Challenges and Resilience Amid Market Volatility

CDL Hospitality Trusts (CDREIT SP), a leading Singapore-listed REIT focused on hospitality assets, is facing multiple headwinds in 2025. The first quarter saw a notable decline in operating metrics, influenced by lower RevPAR in core markets, currency depreciation overseas, and operational disruptions due to ongoing asset enhancement initiatives. Despite these challenges, the Trust is bolstered by contributions from recent acquisitions and developments, as well as prudent capital management and declining borrowing costs. Maybank Research maintains a HOLD rating on CDLHT, with a target price of SGD0.75.

1Q25 Performance Highlights: Revenue and NPI Under Pressure

• 1Q25 net property income (NPI): SGD30 million, down 14.2% year-on-year.
• 1Q25 revenue: SGD63.4 million, a 2.8% decrease year-on-year.
• Key markets (Singapore, Maldives, UK): Accounted for 83% of NPI.
• Excluding new acquisitions and developments: Estimated NPI fell by 20% year-on-year.

RevPAR Trends Across Markets

• Singapore: RevPAR fell 15.6% year-on-year to SGD173, driven by both lower rates and occupancy. Renovation works at W Singapore impacted performance.
• Overseas markets: RevPAR was flat to lower across most markets except Japan and Germany, which saw modest gains.
• Maldives: RevPAR declined by 10.3% (USD464).
• United Kingdom: Down 5.8% (GBP98).
• Italy: Sharpest drop at 22.9% (EUR111).
• Japan: Up 11.2% (JPY11,136).
• Germany: Up 4.6% (EUR68).

Key Operating Metrics Table

Capital Management: Gearing Up, Costs Down

• Gearing: Increased to 41.8% (from 40.7% in 4Q24), but remains within a comfortable range against the 50% regulatory ceiling.
• Cost of Debt: Declined slightly to 3.9% (from 4.0% in 4Q24), with guidance maintained at 3.5-4% for FY25.
• Interest Cover Ratio (ICR): 2.20x, a slight dip reflecting higher debt but manageable levels.

Recent acquisitions (Hotel Indigo Exeter, Benson Yard) and the completion of The Castings project (now 67.9% occupied, targeting 90% stabilization) are expected to provide further support to distributions, offsetting some of the operational headwinds.

Valuation and Outlook: Attractive Yields Amid Uncertainty

• 12-month Price Target: SGD0.75 (unchanged).
• Current Price: SGD0.80.
• Yield: 6.7% for FY25E, price-to-book value at 0.5x.
• Valuation Approach: 3-stage dividend discount model with a 7.0% cost of equity.

While the current yield and valuation are attractive, downside risks persist due to global macro uncertainties, trade-related disruptions affecting travel, and potential FX volatility. Maybank’s HOLD rating remains as the 1Q25 performance trails full-year forecasts, awaiting more clarity on operating and financing trends in the first half of 2025.

Financial Performance Snapshot

Business Model and Strategic Positioning

• Portfolio: 19 properties valued at SGD2.9 billion, spanning 4,821 rooms, a mall, and a build-to-rent project (352 units).
• Sponsor: Millennium & Copthorne Hotels, backed by parent City Developments Ltd, Singapore’s second-largest listed developer.
• Growth Drivers: Organic growth from Singapore RevPAR, rising contributions from recent European deals, and a strong acquisition pipeline supported by SGD694 million in debt headroom (as of Sep 2023).
• Lease Structure: About 70% of lease income is derived from master leases, offering stability and reducing sensitivity to RevPAR fluctuations.

Geographic Diversification and Asset Breakdown

Asset Composition by Geography:

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

Financial Metrics and Trends

• DPU Growth: Forecasted at 11.2% in FY25 and 5.5% in FY26.
• RevPAR Growth: Averaging 3% YoY for FY25/26E.
• NPI Margins: Expected in the 53%-54% range.
• Borrrowing Costs: Projected to fall from 4.4% (FY24) to 3.6% (FY26).

Risk Factors: What Could Derail the Recovery?

• Tariffs and trade-related disruptions impacting global travel demand.
• Sluggish recovery in China’s outbound travel.
• Delays in anticipated interest rate cuts.
• Rising operating cost base or unforeseen cost increases.
• Significant volatility in foreign exchange rates affecting DPU and hedging strategies.
• Oversupply of hotel rooms relative to demand.

ESG and Governance: Sustainability in Focus

• Environmental: All Singapore hotels at least BCA Green Mark Gold certified; targeted 5-7% energy and 2-7% water consumption reduction over five years (from FY19 baseline).
• Social: Initiatives for employee retention and engagement, diversity, and inclusion, including training and surveys. Hilton Cambridge City Centre recognized as the only LGBTQ+ led hotel in Cambridge.
• Governance: Managed externally by City Developments subsidiaries; high board independence (5 of 6 members independent); payout ratio consistently above 90% tax transparency threshold.

Conclusion: Attractive Valuation, But Near-Term Uncertainty Remains

CDL Hospitality Trusts presents a compelling income play with a forecasted yield approaching 7% and a significant discount to book value. However, short-term uncertainties tied to global travel demand, FX volatility, and cost pressures warrant investor caution. The Trust’s diversified asset base, stable lease structure, and prudent debt management provide some insulation, but the pace of recovery in core markets will be critical in determining upside potential.
Key Takeaway: Maintain HOLD. Investors should watch for further clarity in the operating and financing environment by 1H25. CDLHT remains a resilient REIT navigating a challenging macro backdrop with a disciplined approach to capital and asset management.

Contact Information

For further details, reach out to Maybank Research Pte Ltd, Singapore.