Is CDL Hospitality Trust Worth Investing In?

CDL Hospitality Trust (CDLHT) is a SGX-listed hospitality trust with assets worth S$ 2.7 billion. As at 30 September 2018, CDLHT has a portfolio of 15 hotels and 2 resorts comprising of over 5,000 rooms and 1 retail mall located in Singapore, Australia, New Zealand, Maldives, Japan, United Kingdom, and Germany.

In this article, I’ll assess its fundamentals in great detail, bring an update on the trust’s latest developments, and evaluate its investment potential based on the current unit price of S$ 1.55.

Thus, here are 11 things to know about CDLHT before you invest.

Portfolio Review

1. Singapore Portfolio
   Revenue fell to S$ 89.0 million in 2017, marking its fifth consecutive fall since 2012 when it recorded S$ 120.7 million in revenue. It is caused by falling revenues reported by all of its 6 hotels in Singapore for the last 5 years. Still, Singapore remains an important source of income to CDLHT as the 6 hotels account 63.9% in its portfolio valuation and is making as much as 59.4% of its net property income (NPI) in 9M 2018.
   
   
   

Source: CDLHT’s Annual Reports

1. Australia Portfolio
   Revenues fell to S$ 14.5 million in 2017, down from its highest revenue of S$ 19.4 million recorded in 2012. It is due to falling revenues from all of its 5 hotels since 2012. On 11 January 2018, CDLHT had divested two hotels namely, Mercure Brisbane and Ibis Brisbane, for A$ 77.0 million. Since then, it retained three hotels in its Australia portfolio namely, Ibis Perth, Mercure Perth and Novotel Brisbane. They represent for 6.0% of CDLHT’s portfolio valuation and brought in 6.9% of its NPI in 9M 2018.
   
   
   

Source: CDLHT’s Annual Reports

1. New Zealand Portfolio
   CDLHT had commenced its new lease with Grand Millennium Auckland on 7 September 2016. It has higher component of variable rent income than its previous lease which was largely on fixed rent income. From its new lease, the hotel has recorded S$ 19.4 million in revenue in 2017, a jump from S$ 8 – 10 million per annum from 2008 to 2015. Presently, it accounts for 8.2% of portfolio valuation and 12.1% of NPI in 9M 2018.
   
   
   

Source: CDLHT’s Annual Reports

1. United Kingdom (U.K.) Portfolio
   CDLHT has acquired 2 hotels over the last 3 years. In 2015, it purchased
   Hilton Cambridge City Centre for GBP 61.5 million. Subsequently, it has purchased the Lowry Hotel for GBP 52.5 million in 2017. In 2017, it had reported S$ 36.4 million in revenue, up from S$ 21.4 million in 2016. At present, CDLHT’s U.K. portfolio accounts for 7.7% of portfolio valuation and 8.8% of NPI in 9M 2018.
   
   
   

Source: CDLHT’s Annual Reports

1. Germany Portfolio
   CDLHT has an effective interest of 94.5% in Pullman Hotel Munich. The hotel was acquired on 14 July 2017 for EUR 98.9 million. In 2017, it has contributed S$ 5.5 million in revenue. Presently, it accounts for 6.3% in CDLHT’s portfolio and 6.5% of its NPI in 9M 2018.
   
   

Collectively, its portfolio in Singapore, Australia, New Zealand, United Kingdom, and Germany account for 92.0% and 93.8% of CDLHT’s portfolio valuation as at 30 September 2018 and NPI in 9M 2018.

Group Performance

1. Profitability
   Overall, CDLHT has maintained distributable income* at around S$ 100 million per annum. From a closer view, I find distributable income* had fallen from S$ 109.5 million in 2012 to S$ 99.1 million in 2016. This was in line with its drop in revenue and NPI from its properties in Singapore and Australia. In 2017, CDLHT reported S$ 110.3 million in distributable income*, a substantial jump from 2016. This is due to improved results from its hotel in New Zealand and contributions from newly purchased hotels in United Kingdom, Germany, and Japan.
   
   
   

Source: CDLHT’s Annual Reports

Note:
Distributable Income* – income after netting off income retained for its working capital and inclusive of capital distribution.

1. Distributions per Unit (DPU)
   DPU, however, dipped to 9.22 cents in 2017 despite recording a hike in its distributable income. It is due to having an enlarged base of units as a result of exercising rights issue in 2017 to repay its existing debt. DPU figures have been declining since its highest of 11.32 cents in 2012.
   
   
   

Source: CDLHT’s Annual Reports

1. Balance Sheet Strength
   As at 30 September 2018, CDLHT has reported to have total debt of S$ 957.2 million and thus, having 33.8% in gearing ratio. It has a weighted average cost of debt of 2.4%. It has a current debt headroom of S$ 572 million which enables CDLHT to finance any capital expenditures or any new investments into hospitality assets, if opportunities arise. CDLHT’s credit rating by Fitch stands at BBB- presently.

Future Prospects

1. Hotel Cerretani Florence (HCF), MGallery by Sofitel
   As at 16 November 2018, CDLHT had announced its acquisition of 95% of HCF, Italy for EUR 40.6 million. It is a freehold, 4-star, 86-room hotel which was recently refurbished in 2016. This property would be leased under a new lease term of 20 years where it consists of base rent of S$ 2.0 million as downside protection and is able to enjoy upside potential where rent receivable is equivalent to 93% of its net operating income.

Valuation

1. Dividend Yield
   For the last 12 months, CDLHT has paid out 9.32 cents in DPU. At stock price of S$ 1.55 an unit, its dividend yield is 6.01% per annum, which is below its 9-Year Average of 6.46% per annum from 2009 to 2017.
   
   
   

1. P/B Ratio
   As at 30 September 2018, CDLHT has reported net assets of S$ 1.49 per unit. Thus, CDLHT’s current P/B Ratio is 1.04. It is close to its 9-Year P/B Ratio Average of 1.03.
   
   
   

VIA’s Verdict

CDLHT has delivered gradual fall in its DPU and as well as net asset value (NAV) per unit since 2012. It is a shortcoming when compared to other REITs that are reporting steady increase in both DPU and NAV over the last 5 – 10 years. Here, the question is: ‘Should I buy CDLHT at S$ 1.55 an unit?’

Your answer depends on:

– Your other findings / comparison with other S-REITs.

– Your level of acceptance in terms of fundamental quality of CDLHT

– whether or not, you accept a gross dividend yield of 6.01% per annum.

You’ll call the shots! Happy Investing!

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