On 30 January 2024, CDL Hospitality Trusts (“CDLHT”) have announced their 2023 full year result. Given the consistency of revenue earned over the last 18 months, it would appear as if the operations of CDLHT have returned to normal. This should provide investors assurance that the hospitality asset class is now stable. The only main factor currently affecting DPU are finance costs, which similar to other REITs, is likely to remain high over the next few quarters.
Website: Financial Statements And Related Announcement::Full Yearly Results
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 | +1.2% | No Info |
DPU for 2023 has increased by 1.2% to SGD0.0570 per stapled unit from SGD0.0563 in the previous financial year. This metric is Favorable.
However, worth noting that earlier in the first half of 2023, there was a 23% increase for the 6 months ending 30 June 2023 due to the lower base of the first half of 2022. The base for the second half of 2022 was already on the road to recovery, which resulted in the second half of 2023 seeing an overall decrease in earnings per stapled unit, pulling down the DPU for the full year to only a small increase of 1.2%. Based on trend, CDLHT have already full recovered from the lows of Covid-19.
Occupancy
| Metrics | Current | Previous |
|---|---|---|
| Occupancy | No Info | No Info |
Based on the announcement on 30 January 2024, occupancy rate was not included in the announcement.
Gearing ratio
| Metrics | Current | Previous |
|---|---|---|
| Gearing Ratio | 36.7% | 38.4% |
Gearing ratio decreased to 36.7% as of 31 December 2023. This to me is considered Favorable as it is a distance away from the MAS limit of 50%.
Interest coverage
| Metrics | Current | Previous |
|---|---|---|
| Interest Coverage | 2.7x | 2.9x |
The interest coverage for the trailing 12 months stands at 2.7 times. The overall metric is Neutral as the interest coverage is lower than my preference of 3.0 times, though not significantly lower. This will likely improve over the next few quarters as the Federal Reserve on 20 March 2024 have voted to hold interest rates at a 23-year high for a fifth consecutive meeting, while signalling that it still expects to make three cuts this year. This was after increasing the interest rates to a range between 5.25% and 5.50% on 26 July 2023.
Website: US Federal Reserve holds key rate, pencils in 3 cuts this year
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 of 31 December 2023, they have mentioned that 52.3% of their debt is on fixed rates.
I have thus performed a sensitivity analysis using the information as of 31 December 2023:
| Description | Amount (SGD’000) |
|---|---|
| Total Debt | $1,156,400 |
| Debt Not Hedged (%) | 47.7% |
| Debt at Floating Rate Exposed | $551,603 |
| Distributable Income FY2023 | $70,970 |
Interest rate sensitivity analysis as below:
| Change in Interest Rates | Decrease in Distributable Income (SGD’000) | Change as % of FY2023 Distribution |
|---|---|---|
| + 50 bps | -$2,758 | -3.9% |
| + 100 bps | -$5,516 | -7.8% |
| + 150 bps | -$8,274 | -11.7% |
| + 200 bps | -$11,032 | -15.5% |
| + 250 bps | -$13,790 | -19.4% |
| + 300 bps | -$16,548 | -23.3% |
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 | 2.2 years |
Weighted average term to maturity of their debt stands at 2.2 years as of 31 December 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 | 0.68 | 0.77 |
The Price to Book (“P/B”) ratio currently stands at 0.68. This is computed using the closing share price of SGD1.02 on 28 March 2024 and the net asset value per share of SGD1.50 as of 31 December 2023. The P/B ratio is Favorable.
Dividend yield
| Year | Yield | Total |
|---|---|---|
| 2024 | 3.13% | SGD 0.032 |
| 2023 | 5.98% | SGD 0.061 |
| 2022 | 5.00% | SGD 0.051 |
| 2021 | 4.57% | SGD 0.047 |
| 2020 | 6.25% | SGD 0.064 |
| 2019 | 8.93% | SGD 0.091 |
Dividend paid out in the first half of 2024 amounted to SGD0.032 per share. When annualised, the expected dividend pay out for 2024 will be SGD0.064 per share. With a closing share price of SGD1.02 as of 28 March 2024, this translates to a dividend yield of 6.27%. For my benchmark, a general reasonable range would be around an average of 5.25% to 6.25%. CDLHT is above the range and the dividend yield is Favorable.
Website: Reasonable Dividend Yield 2024Q1
Summary
| Metrics | Financials | Rating |
|---|---|---|
| Distribution Per Unit | +1.2% | Favorable |
| Occupancy | No Info | N/A |
| Gearing Ratio | 36.7% | Favorable |
| Interest Coverage | 2.7x | Neutral |
| Debt Maturity Profile | 2.2 years | Neutral |
| Price to Book Ratio | 0.68 | Favorable |
| Overall | | Favorable |
Overall, the metrics indicate that it is favorable to invest in CDLHT. The hospitality sector have rebounded back to their pre-Covid operations. This should provide investors with assurance on their stability over the next few quarters.
Disclaimer: Not financial advice. All data and information provided on this site is for informational purposes only.
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