On 27 October 2023, CDL Hospitality Trusts (“CDLHT”) have announced their third quarter business update for 2023. There is no DPU update this quarter, though management have disclosed that there is an increase in net property income (“NPI”) for 2023Q3 compared to the previous quarters. With the final quarter of 2023Q4 being the holiday season, there is an opportunity for them to further increase their NPI and provide higher distribution in February 2024 similar to historical trends.
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 | +23.0% |
Based on the announcement on 27 October 2023, DPU was not included in the business update for the third quarter of 2023.
As at 30 June 2023, the overall metric was Favorable as there are continued signs of recovery from Covid.
Occupancy
| Metrics | Current | Previous |
|---|---|---|
| Occupancy | No Info | No Info |
Based on the announcement on 27 October 2023, occupancy rate was not included in the announcement.
Gearing ratio
| Metrics | Current | Previous |
|---|---|---|
| Gearing Ratio | 38.4% | 37.9% |
Gearing ratio stands at 38.4% as at 30 September 2023. This to me is considered Neutral as while it is still a distance away from the MAS limit of 50%, it has increased and may easily cross to 40% should there be any decrease in valuations.
Interest coverage
| Metrics | Current | Previous |
|---|---|---|
| Interest Coverage | 2.9x | 3.2x |
The interest coverage for the trailing 12 months stands at 2.9 times. The overall metric is Unfavorable as the interest coverage is lower than my preference of 5.0 times. This metric is likely to improve however as the Federal Reserve on 13 December 2023 held its key interest rate steady for the third straight time and set the table for multiple cuts to come in 2024 and beyond. The interest rates are therefore maintained at a range between 5.25% and 5.50%, which was increased on 26 July 2023, the highest level in 22 years.
Website: Fed holds rates steady, indicates three cuts coming in 2024
As the interest rate may potentially increase further, CDLHT may be subjected to significant change in their cost of debt in the near future. As at 30 September 2023, they have mentioned that 50.2% of their debt is on fixed rates.
I have thus performed a sensitivity analysis using the information as at 30 September 2023:
| Description | Amount (SGD’000) |
|---|---|
| Total Debt | $1,149,000 |
| Debt Not Hedged (%) | 49.8% |
| Debt at Floating Rate Exposed | $572,202 |
| 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 | -$2,861 | -4.1% |
| + 100 bps | -$5,722 | -8.2% |
| + 150 bps | -$8,583 | -12.3% |
| + 200 bps | -$11,444 | -16.4% |
| + 250 bps | -$14,305 | -20.5% |
| + 300 bps | -$17,166 | -24.6% |
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.
Debt maturity profile
| Metrics | Current | Previous |
|---|---|---|
| Debt Maturity Profile | 2.2 years | 2.1 years |
Weighted average term to maturity of their debt stands at 2.2 years as at 30 September 2023. This is Neutral as it has been hovering around the 2.0 year mark.
Price to Book Ratio
| Metrics | Current | Previous |
|---|---|---|
| Price to Book Ratio | 0.77 | 0.72 |
Based on the announcement on 27 October 2023, Net Asset Value (“NAV”) was not included in the business update for the third quarter of 2023.
The Price to Book (“P/B”) ratio currently stands at 0.77. This is computed using the closing share price of SGD1.09 on 22 December 2023 and the net asset value per share of SGD1.41 as at 30 June 2023. The P/B ratio is Favorable.
Dividend yield
| Year | Yield | Total |
|---|---|---|
| 2023 | 5.60% | SGD 0.061 |
| 2022 | 4.68% | SGD 0.051 |
| 2021 | 4.28% | SGD 0.047 |
| 2020 | 5.84% | SGD 0.064 |
| 2019 | 8.36% | SGD 0.091 |
| 2018 | 3.95% | SGD 0.094 |
With total dividends paid for 2023 amounted to SGD0.061 per share and a closing share price of SGD1.09 as at 22 December 2023, this translates to a dividend yield of 5.60%.
For my benchmark, a general reasonable range would be around an average of 6.0% to 7.0% in the current environment. While CDLHT has been recording an uptrend in dividend payout, the current high dividend yield is mainly due to the share price falling, especially as interest rates increase. Nonetheless, the hospitality sector is expected to continue improving over the next few quarters.
Website: Reasonable Dividend Yield 2023Q4
If using dividend yield of 6.0% as a benchmark, based on the dividend of SGD0.061 there is potential for CDLHT to see its share price drop by 6.7% to SGD1.02. Investors will thus need to be mentally prepared that the share price might further fall should the required return reaches those levels.
| Yield | Share Price | Downside |
|---|---|---|
| Current (5.60%) | 1.09 | – |
| 6.00% | 1.02 | -6.7% |
| 7.00% | 0.80 | -26.6% |
| 8.00% | 0.70 | -35.8% |
| 9.00% | 0.62 | -42.9% |
However, with long term interest rates continuing to decrease, the required rate of return may not be as high as before. The February 2024 Singapore Savings Bond 10 year average yield is on track to be around 2.83%.
Website: Singapore Savings Bond – February 2024 – Expected 10 Year Average Yield – 2.83%
The dividend yield is Neutral.
Summary
| Metrics | Financials | Rating |
|---|---|---|
| Distribution Per Unit | No Info | Favorable |
| Occupancy | No Info | N/A |
| Gearing Ratio | 38.4% | Neutral |
| Interest Coverage | 2.9x | Unfavorable |
| Debt Maturity Profile | 2.2 years | Neutral |
| Price to Book Ratio | 0.77 | Favorable |
| Overall | | Neutral |
Overall, the metrics indicate that it is neutral to invest in CDLHT, with the change due to the slight increase in gearing ratio. There is however continued opportunities for their financials to improve as the hospitality sector continues to recover and notably they have disclosed an increase in NPI. Investors should take note in the next financial update.
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): 2023 Half Year Result
