Better days ahead
- 2H23 DPU of 1.929 UScts missed our estimate, though operational performance and margins improved
- Portfolio valuations stayed flattish y-o-y at US$751.4m, despite increase in capitalisation rates
- Lower FY24F DPU by c.14.5% to 3.48 UScts on higher cost of debt and shift in management fees to more cash, partially offset by higher margins
- Maintain BUY with revised TP of US$0.40
2H23 was a miss, albeit continued improvement in margins. 2H23 revenue increased 2.0% y-o-y to US$89.5m from US$87.8m in 1H23. Gross operating profit (GOP)/net property income (NPI) grew 5.3%/26.4% y-o-y to US$31.3m/US$25.7m, respectively. GOP margin improved to 35.0% in 2H23 from 33.9% in 2H22. NPI margin expanded to 28.7% in 2H23 from 23.1% in 2H22, mainly due to lower property taxes. 2H23 distributable income improved 18.9% y-o-y to US$11.2m from US$8.7m in 2H22; 2H23 DPU lifted to 1.929 UScts compared to 1.627 UScts in 2H22, though it fell short of our estimate.
Portfolio valuation stayed flattish at US$751.4m (+0.5% y-o-y), despite the increase in capitalisation rates, as the newly acquired Hilton hotel helped mitigate the decline in the valuations of the Hyatt portfolio. NAV declined significantly to US$0.74 as at Dec 2023 from US$0.80 as at Dec 2022, primarily attributable to the decline in the cash balance. Average cost of debt increased to 4.8% as at Dec 2023 from 3.8% as at Dec 2022, with a weighted average debt expiry of 2.5 years. 74.5% of debt is hedged to fixed interest rates, and all debt maturing in FY24 has been refinanced while the manager is proactively seeking to refinance the upcoming US$77m loan due in Feb 2025.
Portfolio valuations
| US$m | As at 31 Dec 2022 | As at 31 Dec 2023 |
| Hyatt Portfolio | 643.1 | 614.3 |
| Marriott Portfolio | 104.7 | 105.6 |
| Hilton Hotel | – | 31.5 |
| Portfolio value | 747.8 | 751.4 |
Source: Company, DBS Bank Ltd
