On 30 July 2024, CDL Hospitality Trusts (“CDLHT”) have announced their half year result for FY2024. DPU growth have remained flat for this half of the year, mainly impacted by the higher financing costs despite increases in revenue per available room. This might change over the next few quarters as CDLHT look to refinance their debt, which have a notably short debt maturity profile as of 30 June 2024. This may be favorable to them, as there are expectations of interest rate cuts over the next few months. This might allow them to refinance at lower interest rates which will in turn support their interest coverage and DPU growth. Investors will need to monitor if there are any changes over the next few months.
Website: Financial Statements and Related Announcement::Half Yearly Results
Website: Financial Statements and Related Announcement::Half 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 | No Change | No Info |
DPU for the first half of FY2024 remained unchanged at SGD0.0251 per share. It was noted that there was revenue per available room growth recorded across virtually all portfolio markets. However, DPU was flat due to higher interest costs. This metric is Neutral.
Occupancy
| Metrics | Current | Previous |
|---|---|---|
| Occupancy | No Info | No Info |
Based on the announcement on 30 July 2024, occupancy rate was not included in the announcement.
Gearing ratio
| Metrics | Current | Previous |
|---|---|---|
| Gearing Ratio | 37.7% | 37.8% |
Gearing ratio remained relatively unchanged at 37.7% as of 30 June 2024. The metric remains Favorable as it is a distance away from the MAS limit of 50%. It is however not far from an assessment of metric shift.
Interest coverage
| Metrics | Current | Previous |
|---|---|---|
| Interest Coverage | 2.7x | 2.7x |
The interest coverage for the trailing 12 months remains unchanged at 2.7 times as of 30 June 2024. The overall metric remains Neutral as the interest coverage is lower than my preference of 3.0 times. It may improve moving forward with market expectation of upcoming interest rate cuts.
Debt maturity profile
| Metrics | Current | Previous |
|---|---|---|
| Debt Maturity Profile | 1.8 years | 2.0 years |
Weighted average term to maturity of their debt shortened to 1.8 years as of 30 June 2024. This metric remains Neutral but it is moving significantly lower than the 2.0-year mark. There may be issues if CDLHT is unable to refinance in time. Per management disclosure, they are actively engaging banks to refinance the remaining loans maturing in FY2024, with a view to rebalance the debt maturity profile.
Price to Book Ratio
| Metrics | Current | Previous |
|---|---|---|
| Price to Book Ratio | 0.64 | 0.65 |
The Price to Book (“P/B”) ratio currently stands at 0.64. This is computed using the closing share price of SGD0.940 on 10 September 2024 and the net asset value per share of SGD1.48 as of 30 June 2024. The P/B ratio is Favorable.
As of 10 September 2024, the Market Capitalization is approximately SGD1,185 million.
Dividend
| Year | Yield | Total |
|---|---|---|
| 2024 | 6.06% | SGD 0.057 |
| 2023 | 6.49% | SGD 0.061 |
| 2022 | 5.43% | SGD 0.051 |
| 2021 | 4.96% | SGD 0.047 |
| 2020 | 6.78% | SGD 0.064 |
The total dividend payout for the calendar year 2024 amounted to SGD0.057 per share. With a closing share price of SGD0.940 as of 10 September 2024, this translates to a dividend yield of 6.06%. For my benchmark, a reasonable yield would be around 5.75%. CDLHT is above the range and the dividend yield is Favorable.
Website: Reasonable Dividend Yield 2024Q3 – 5.75%
Interest Rate Sensitivity
The Federal Reserve on 23 August 2024 has signaled that they are ready to cut interest rates, confident that inflation is easing to normal levels and wary of any more slowing in the job market. This was after increasing the interest rates to a range between 5.25% and 5.50% on 26 July 2023. Take note however that there were no specific timeline or forecasts, though market expectations are that the cut will happen in September 2024.
Website: Fed Chair Powell: ‘The time has come’ for interest rate cuts
As the interest rate may potentially increase further, CDLHT may be subjected to significant change in their cost of debt in the near future. The debt profile of CDLHT is as below:
| Description | Amount (SGD’000) |
|---|---|
| Total Debt | $1,198,700 |
| Debt Not Hedged (%) | 48.0% |
| Debt at Floating Rate Exposed | $575,376 |
| Distributable Income FY2023 | $70,970 |
Using the above information, interest rate sensitivity is as below:
| Change in Interest Rates | Decrease in Distributable Income (SGD’000) | Change as % of FY2023 Distribution |
|---|---|---|
| + 50 bps | -$2,877 | -4.1% |
| + 100 bps | -$5,754 | -8.1% |
| + 150 bps | -$8,631 | -12.2% |
| + 200 bps | -$11,508 | -16.2% |
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.
Summary
| Metrics | Financials | Rating |
|---|---|---|
| Distribution Per Unit | No Change | Neutral |
| Occupancy | No Info | N/A |
| Gearing Ratio | 37.7% | Favorable |
| Interest Coverage | 2.7x | Neutral |
| Debt Maturity Profile | 1.8 years | Unfavorable |
| Price to Book Ratio | 0.64 | Favorable |
| Overall | Neutral |
Overall, the metrics indicate that it is Neutral to invest in CDLHT. The key concern would be the short debt maturity profile, which indicates that there are borrowings which are due over the next few quarters to be refinanced. Investors will need to monitor if the borrowings can be refinanced at favorable terms.
Disclaimer: Not financial advice. All data and information provided on this site is for informational purposes only.
Previous Post
Website: CDL Hospitality Trust (SGX: J85): 2024 First Quarter Business Update
