Top beneficiary of domestic staycation boost

  • CDREIT to be a top beneficiary of local staycation demand boost, as those with overseas travel plans hesitate with Omicron variant development
  • We have softer estimates, as we expect the sector to recover to c.70% of normalised levels come 2022
  • DPU growth of 16% y-o-y and compelling forward FY22 yield of 5.3%
  • Maintain BUY, higher TP of S$1.40

Investment Thesis

Attractive valuation buffers. CDL Hospitality Trust (CDLHT) currently trades at a P/NAV 0.9x or -0.5 SD (standard deviation) of its mean of 1.0x. We maintain our BUY call with a higher TP of S$1.40 and forward FY22 yield of 5.3% as we input softer growth estimates and roll forward valuations. 
Awaiting flight as borders reopening sees delay once again. Softer recovery trajectory to c.70% of pre-COVID levels in 2022 from c.50% of pre-COVID levels in 2021. CDREIT continues to be one of the top beneficiaries to benefit from a staycation demand boost as Singaporeans look locally for holiday options this year-end. Green shoots prominent in 3Q21 with overseas markets resuming normalcy. Temporary hiccups going into 2022 with Omicron variant as a wild card but CDLHT’s Singapore hotels will likely see an extension of government block bookings to beyond 1Q22 as a near-term hedge. Our estimates show a 16% y-o-y growth in DPU from FY21 to FY22 on more conservative recovery assumptions. 

Broadening horizons to an expanded lodging asset class. The pivot towards the built-to-rent (BTR) sector amongst other possible future lodging asset classes highlights the management’s strategic intent to seek resilience through diversity and earnings stability post the pandemic. With a varied demand driver compared to hospitality assets, we believe that the BTR investment is value-accretive and complementary to its portfolio.

Valuation:

Our TP is maintained at S$1.40, as we price in softer y-o-y growth and roll forward valuations into FY22. 

Where we differ:

We remain ahead of consensus as we see hotels (especially the Maldives and Singapore) capturing pent-up demand for leisure travel.

Key Risks to Our View:

Omicron development to cause a longer-than-expected delay to global border reopening.