On 28 April 2023, CDL Hospitality Trusts (“CDLHT”) have announced their first quarter business update for 2023. Generally there are no significant changes this quarter, and the business update did not provide much financial updates.
They did however mention that net property income have increased by 35.0% for 2023Q1 as compared to the same quarter 2022Q1 in the previous year. The upcoming half year result announcement on 28 July 2023 will provide more clarity if this increase in net property income translate to a higher DPU. Should there be significant improvement in their recurring DPU, it will help improve the financials and make CDLHT an attractive investment for the longer-term.
Website: General Announcement::Operational Update For The First Quarter Ended 31 March 2023
Background
CDLHT is one of Asia’s leading hospitality trusts. It comprises CDL Hospitality Real Estate Investment Trust (“H-REIT”), a real estate investment trust, and CDL Hospitality Business Trust (“HBT”), a business trust. CDLHT was listed on the Mainboard of the Singapore Exchange Securities Trading Limited on 19 July 2006, with H-REIT being the first hotel real estate investment trust in Asia (ex Japan).
H-REIT’s principal investment strategy is to invest in a diversified portfolio of income-producing real estate, which is primarily used for hospitality, hospitality-related and other accommodation and/or lodging purposes (including, without limitation, hotels, serviced apartments, resorts, motels, other lodging facilities and properties used for rental housing, co-living, student accommodation and senior housing) globally.
HBT’s principal investment strategy is to invest in a diversified portfolio of real estate or development projects, which is or will be primarily used for hospitality, hospitality-related and other accommodation and/or lodging purposes (including, without limitation, hotels, serviced apartments, resorts, motels, other lodging facilities and properties used for rental housing, co-living, student accommodation and senior housing) globally and may also include the operation and management of the real estate assets held by H-REIT and HBT.
CDLHT is managed by M&C REIT Management Limited and M&C Business Trust Management Limited, subsidiaries of Millennium & Copthorne Hotels Limited, an internationally recognised hospitality group, which owns and operates hotels globally.
Key Metrics
Distribution Per Unit (“DPU”)
| Metrics | Current | Previous |
|---|---|---|
| Distribution Per Unit | No Info | +31.9% |
Based on the announcement on 28 April 2023, DPU was not included in the business update for the first quarter of 2023.
As at 31 December 2022, the overall metric was Favorable as there are signs of recovery from Covid.
Occupancy
| Metrics | Current | Previous |
|---|---|---|
| Occupancy | No Info | No Info |
Based on the announcement on 28 April 2023, occupancy rate was not included in the business update.
Gearing ratio
| Metrics | Current | Previous |
|---|---|---|
| Gearing Ratio | 37.5% | 36.6% |
Gearing ratio stands at 37.5% as at 31 March 2023. This to me is considered Favorable as it is still a distance away from the MAS limit of 50%.
Interest coverage
| Metrics | Current | Previous |
|---|---|---|
| Interest Coverage | 3.5x | 3.7x |
The interest coverage for the trailing 12 months stands at 3.7 times. This is not surprising given that the hospitality sector has not fully recovered from Covid-19 and their earnings are still at low levels. The overall metric is Unfavorable as the interest coverage is lower than my preference of 5.0 times and may worsen. The Federal Reserve on 22 June 2023 have hinted to continue hiking interest rates, after their last rate hike in 3 May 2023 have brough the interest rates to a range between 5.00% and 5.25%.
Website: US Fed official says more rate hikes necessary
As the interest rate may potentially increase further, CDLHT may be subjected to significant change in their cost of debt in the near future. In their presentation they have mentioned that 55.5% of their debt is on fixed rates.
I have thus performed a sensitivity analysis using the information as at 31 March 2023:
| Description | Amount (SGD’000) |
|---|---|
| Total Debt | $1,102,000 |
| Debt Not Hedged (%) | 44.5% |
| Debt at Floating Rate Exposed | $490,390 |
| Distributable Income FY2022 | $69,700 |
Interest rate sensitivity analysis as below:
| Change in Interest Rates | Decrease in Distributable Income (SGD’000) | Change as % of FY2022 Distribution |
|---|---|---|
| + 50 bps | -$2,452 | -3.5% |
| + 100 bps | -$4,904 | -7.0% |
| + 150 bps | -$7,356 | -10.6% |
| + 200 bps | -$9,808 | -14.1% |
| + 250 bps | -$12,260 | -17.6% |
| + 300 bps | -$14,712 | -21.1% |
Do note the above is my estimation which may be different from management’s estimation. Nonetheless, if the interest rates were to increase by the basis points above, CDLHT may experience a fall in DPU accordingly. Due to their lower earnings as compared to the other sectors, any further increase in interest rates will have a more pronounced impact on their distributable income. Something investors should take note of.
Debt maturity profile
| Metrics | Current | Previous |
|---|---|---|
| Debt Maturity Profile | 1.9 years | 2.0 years |
Weighted average term to maturity of their debt stands at 1.9 years as at 31 March 2023. This is Neutral. Their current blended cost of debt has increased to 3.8% from 3.5% in the previous quarter. The significant increase is not unexpected as they have taken on new debt at the current interest rates in the market, which also resulted in the increase in debt maturity profile.
My expectation is that the high interest rates will only drop around 2 years later. CDLHT may have to re-finance their remaining debt at rates that are unfavorable which will in turn worsen the other metrics.
Price to Book Ratio
| Metrics | Current | Previous |
|---|---|---|
| Price to Book Ratio | 0.82 | 0.83 |
Based on the announcement on 28 April 2023, Net Asset Value (“NAV”) was not included in the business update for the first quarter of 2023.
The Price to Book (“P/B”) ratio currently stands at 0.82. This is computed using the closing share price of SGD1.18 on 6 July 2023 and the net asset value per share of SGD1.44 as at 31 December 2022. The P/B ratio is Favorable.
Dividend yield
| Year | Yield | Total |
|---|---|---|
| 2023 | 3.04% | SGD 0.036 |
| 2022 | 4.32% | SGD 0.051 |
| 2021 | 3.95% | SGD 0.047 |
| 2020 | 5.40% | SGD 0.064 |
| 2019 | 7.72% | SGD 0.091 |
| 2018 | 7.99% | SGD 0.094 |
The dividend paid in the first half of 2023 amounted to SGD0.036 per share while the dividend paid in the second half of 2022 is at SGD0.020 per share. The total expected dividend would be around SGD0.056 per share. This is a conservative estimate as the dividend is expected to increase with the operations returning to pre-Covid level.
At 6 July 2023, with a closing share price of SGD1.18 and expected dividend payout of SGD0.056 for the full calendar year 2023, this translates to a dividend yield of 4.75%. The dividend yield is Unfavorable. For my benchmark, a general reasonable range would be around an average of 5.5% to 6.5% in the current environment. CDLHT lower dividend yield is not unexpected given that the hospitality sector have not recovered as compared to the other sectors.
Website: Reasonable Dividend Yield 2023Q3
If using dividend yield of 5.5% as a benchmark, based on the dividend of SGD0.056 there is potential for CDLHT to see its share price drop by 13.7% to SGD1.02. Investors will thus need to be mentally prepared that the share price might further fall.
| Yield | Share Price | Downside |
|---|---|---|
| Current (4.71%) | 1.19 | – |
| 5.50% | 1.02 | -13.7% |
| 6.50% | 0.86 | -27.0% |
| 7.50% | 0.75 | -36.7% |
| 8.50% | 0.66 | -44.2% |
CDLHT may be able to improve their financial performance over the next few quarters as they tourism improves. However for this quarter, the dividend yield is Unfavorable.
Summary
| Metrics | Financials | Rating |
|---|---|---|
| Distribution Per Unit | +31.9% | Favorable |
| Occupancy | No Info | N/A |
| Gearing Ratio | 37.5% | Favorable |
| Interest Coverage | 3.5x | Unfavorable |
| Debt Maturity Profile | 1.9 years | Neutral |
| Price to Book Ratio | 0.82 | Favorable |
| Overall | | Favorable |
Overall, the metrics indicate that it is favorable to invest in CDLHT. Since the previous article, the share price continues to remain depressed as safe assets provide higher interest rates and the dividend yield continues to remain low. Nonetheless, it also provides opportunities for investors to buy the shares at cheaper prices with the view that the hospitality sector may recover in due course.
CDLHT is a higher risk higher reward investment where investors may be able to higher earn capital appreciation and increased dividend payouts as compared to the other investments.
Disclaimer: Not financial advice. All data and information provided on this site is for informational purposes only.
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Website: CDL Hospitality Trust (SGX: J85): 2022 Full Year Result
