1H22: Accelerate Recovery With Higher Room Rates
For Singapore hotels, RevPAR doubled yoy to S$151 in 2Q22 with occupancy improving 5.3ppt yoy to 75.8% and ADR increasing 85% yoy to S$200. NPI from Singapore, Maldives and the UK grew 60.3%, 90.9% and 354% yoy respectively. Outlook is positive. Singapore will benefit from full impact of the reopening of international borders with the F1 Singapore Grand Prix in September and more than 66 international events in 2H22. Maintain BUY. Target price: S$1.54.
RESULTS
• CDL Hospitality Trusts (CDREIT) reported 1H22 DPU of 2.04 S cents (+67.2% yoy), which was slightly above our expectations. The pace of recovery had accelerated in 2Q22 and RevPAR for nine of its hotels have exceeded pre-pandemic levels in Jun 22.
• Singapore: Reopening triggered recovery. RevPAR for Singapore doubled yoy and has rebounded 59% qoq to S$151 in 2Q22. Occupancy improved 5.3ppt yoy to 75.8% and average daily rate (ADR) increased 85% yoy to S$200 in 2Q22. Visitor arrivals surged to 35% of pre-pandemic levels in June after borders were fully reopened on 26 Apr 22. Three hotels exited from government contracts and were deployed for domestic leisure and corporate projects groups. Contribution from W Hotel grew 73.7% yoy in 1H22. RevPAR for five of its six hotels in Singapore exceeded pre-pandemic levels in Jun 22.
• Maldives: Luxury travel making a comeback. RevPAR for Maldives increased 63.0% yoy to US$246 in 2Q22. The two resorts Raffles Maldives Meradhoo and Angsana Velavaru generated NPI of S$6.6m in 1H22, an increase of 90.9% yoy. Tourist arrivals have recovered to 94.3% of pre-pandemic levels in 1H22. NPI grew 90.9% yoy. Maldives is not affected by the Russia-Ukraine war as, according to the World Bank, Russians and Ukrainians accounted for only 16.8% and 2.7% of the 1.3m visitor arrivals in 2021. Maldives is able to attract a high volume of visitors from other source markets, such as Western Europe (the UK, Germany and Italy), Middle East and India.
• Coping with higher interest rates. Interest expense went up 21.4% yoy. Cost of debt increased 0.2ppt qoq to 2.3%. 63.8% of its borrowings are hedged to fixed rates. Aggregate level was stable at 39.5%. Discussions with banks are underway on refinancing of loans of S$238m due in 2H22.
• UK: Recovery ignited by domestic tourism and intra-regional travel. RevPAR for the UK has rebounded 48.8% qoq to £128 in 2Q22. The two hotels Hilton Cambridge and The Lowry Hotel generated NPI of S$5.8m in 1H22, an increase of more than four folds. The UK lifted all travel restrictions on 18 Mar 22. Hilton Cambridge benefits from the recovery of business travel while The Lowry Hotel is popular with sports enthusiasts. The two hotels will be supported by domestic business, augmented by the return of events and international travellers. Newly-acquired Hotel Brooklyn registered NPI of S$1.5m in 1H22. Fixed rents from Hotel Brooklyn increased 5% to £2.4m per year with effect from 7 May 22.
STOCK IMPACT
• Benefitting from resurgence of inbound visitors. The Vaccinated Travel Framework has replaced the existing Vaccinated Travel Lane scheme since 1 Apr 22. Subsequently, Singapore’s international borders were fully reopened starting 26 Apr 22. Business travellers are returning in droves, followed by leisure travel by individuals and tour groups. Visitor arrivals have surged to 543,732 or 35% of pre-pandemic levels in Jun 22. Average length of stay was 5.7 days, compared with the pre-pandemic level of 3.6 days. Singapore will benefit from the F1 Singapore Grand Prix in September and more than 66 international events in 2H22. The full impact of the reopening of international borders is expected in 2H22.
• Expanded scope of investment strategy. CDREIT has revised its principal investment strategy to include adjacent accommodation/lodging assets, such as rental housing, coliving, student accommodation and senior housing. Rental housing includes residential apartment blocks and standalone houses targeting singles, couples and families. These adjacent assets provide stable income streams, which is less susceptible to economic cycles. They have a longer length of stay ranging from a few months to 1-2 years.
• Further expansion of footprint in Manchester. CDREIT has completed the acquisition of 189-room Hotel Brooklyn at 57 & 59 Portland Street, Manchester, UK for £22.8m (S$41.5m) on 22 Feb 22. The 4-star upscale lifestyle hotel was recently opened in Feb 20 and is centrally located near Manchester’s CBD. It is in close proximity to Canal Street, which has a variety of cafes, bars and restaurants.
• The hotel is leased to HLD (Manchester) Limited, which is part of Marshall Holdings Limited, from 7 May 21 to 6 May 81 on a full repairing and insuring basis (59 years unexpired). The tenant pays fixed rent of £2.3m per year subject to upward-only rent review based on inflation. NPI yield has improved by 0.4ppt to 7.8% from 7 May 22 due to rent review based on UK’s Retail Price Index (RPI). The acquisition is accretive to pro forma 2021 DPU by 1.1%. Exposure to the UK has expanded by 1.6ppt to 10% of AUM.
EARNINGS REVISION/RISK
• We raised our DPU forecast by 17% for 2022 and 18% for 2023 due to the rapid recovery in international travel and RevPAR.
VALUATION/RECOMMENDATION
• Maintain BUY. Our target price of S$1.54 is based on DDM (cost of equity: 7.25%, terminal growth: 2.6%).
SHARE PRICE CATALYST
• Reopening of international borders in Singapore. Growth of corporate and leisure travel in Germany, Japan, Maldives, New Zealand and the UK.
• Contributions from yield-accretive acquisitions, including hotels and rental housing
