Broker: Maybank Research Pte Ltd
Date of Report: July 31, 2025

CDL Hospitality Trusts Faces Challenging Climate: DPU Slumps Amid Renovations and Rising Costs

Overview: CDL Hospitality Trusts Under Pressure with DPU Down 21%

CDL Hospitality Trusts (CDREIT SP), a leading Singapore-listed REIT focusing on hospitality, reported a difficult first half of FY2025. The trust saw its distribution per unit (DPU) fall sharply by 21.1% year-on-year, driven by operating headwinds across multiple geographies, ongoing renovations at key properties, and increased interest expenses. Despite proactive debt management and stable gearing, persistent challenges have led to a revised target price and a maintained HOLD rating from analysts.

Key Financial Highlights and Performance

• 1HFY25 DPU: SGD 1.98 cents, down 21.1% YoY
• 1H Revenue: SGD 125.1 million, down 1.8% YoY
• Net Property Income (NPI): SGD 58.6 million, down 11.9% YoY
• Singapore Hotels RevPAR: Fell 14.2% YoY due to a high base
• Gearing: Stable at 42%, up slightly from 41.8% in 1Q
• Cost of Debt: Declined from 3.9% to 3.6%, with further 10bps reduction guided
• 12M Price Target: SGD 0.70 (cut from SGD 0.75), reflecting a 9% downside
• Current Share Price: SGD 0.83
• Market Capitalisation: SGD 1.0B
• DPU Yield (FY25E): 5.9%

Challenging Operating Conditions Across Key Markets

CDL Hospitality Trusts’ performance in 1HFY25 was materially affected by several factors:

• W Hotel Singapore Renovations: Accounted for 40% of the NPI decline. Management expects the bulk of the renovations to be completed by year-end, which should help lift performance in the next fiscal year.
• UK Market: Provided support through contributions from recent acquisitions (The Castings, Benson Yard, Hotel Indigo Exeter), but overall DPU was dragged down by higher borrowing and interest costs associated with UK Build-to-Rent (BTR) projects.
• Other Overseas Markets: NPI declined in most markets except UK, Japan, and Australia. Japan and Germany showed positive RevPAR growth, while New Zealand, Maldives, UK, and Italy saw declines.
• Interest Expenses: While same-store interest expenses fell, overall interest costs rose 4.2% due to UK acquisitions and the expensing of borrowing costs for The Castings.

Operational Metrics: Occupancy, ARR, and RevPAR Trends

Proactive Debt Management Amid Macroeconomic Uncertainty

– Gearing was steady at 42%. – Interest cost declined to 3.6% (from 3.9%), with management targeting another 10bps reduction. – Completion of renovations at the W Hotel and stabilization of the UK BTR portfolio are expected to provide an upside catalyst for the next fiscal year. – Despite higher interest expenses due to new UK assets and the ramp-up phase of Manchester’s BTR project, CDLHT’s balance sheet remains resilient.

Revised Estimates and Lowered Target Price

– DPU estimates have been cut by 10% for FY25 and 4% for FY26, mainly due to lower NPI, partially offset by reduced borrowing costs. – The dividend discount model valuation now applies a cost of equity of 6.9%, resulting in a lower target price of SGD 0.70. – The HOLD rating is maintained due to ongoing market challenges and negative surprises in borrowing expenses.

Portfolio and Growth Drivers

Asset Base:

• CDL Hospitality Trusts owns 19 properties valued at SGD 2.9 billion, including 4,821 rooms and a mall, plus a build-to-rent project with 352 units.
• Sponsor Millennium & Copthorne Hotels operates over 130 hotels globally; parent City Developments is Singapore’s second largest listed developer.

Growth Prospects:

• Potential for organic growth via Singapore RevPAR recovery and incremental contributions from recent UK and European deals.
• Leverage at 38.4% (as of Sep 2023) with SGD 694 million in debt headroom (50% limit) supports further acquisitions.

Financial Performance and Forecasts

Strategic Initiatives, Risks, and Market Position

Strategic Initiatives:

• Divestments and acquisitions, including the sale of Novotel Clarke Quay and new entries into the UK’s build-to-rent and student accommodation sectors.
• Lease mix shift from master leases to managed contracts, though c.70% of income still derives from master leases, reducing volatility in RevPAR and margins.
• Ongoing asset enhancement initiatives, with a focus on sustainability and ESG (Environmental, Social, Governance) improvements.

Risks:

• Uncertain global travel recovery, particularly from China outbound tourism.
• Potential for delayed interest rate cuts and higher cost run-rates.
• Exposure to foreign exchange volatility.
• Risk of new hotel supply outpacing demand, especially in key markets.

ESG and Corporate Governance

• CDLHT’s Singapore hotels are BCA Green Mark Gold certified or higher, with several attaining Gold-Plus or Platinum ratings.
• Targets include a 5-7% reduction in energy consumption and 2-7% reduction in water consumption over five years (from FY19 baseline).
• Board independence is high; 5 of 6 directors are independent and only the CEO is non-independent.
• Performance fees and base fees are aligned with industry norms.
• Employee engagement and diversity initiatives are ongoing, including anonymous feedback surveys and diversity/inclusion training.
• Payout ratio for taxable income consistently exceeds the 90% threshold for tax transparency.

Conclusion: Outlook and Investment Recommendation

While CDL Hospitality Trusts maintains a robust portfolio, stable gearing, and a clear focus on sustainability, significant headwinds in the form of ongoing renovations, rising interest costs, and macroeconomic uncertainties continue to weigh on its distributions and profitability. The completion of key renovations and stabilization of new UK assets may provide positive momentum in the next fiscal year, but near-term risks and earnings volatility justify the cautious HOLD stance and reduced price target.

Appendix: Contact Information and Disclosure

For further inquiries, please refer to Maybank Research Pte Ltd, with coverage led by Krishna Guha. The report contains standard disclaimers and analyst independence certifications. No conflicts of interest or material shareholdings are disclosed for the authors or the research entity as of the report date.