(CDL) on Thursday (Aug 31) announced that it has acquired a hotel in Osaka, Japan for 8.5 billion yen (S$78.5 million).

 

The hotel, Bespoke Hotel Shinsaibashi, is a freehold, 256-room property located in Osaka&rsquo s Shinsaibashi district, a major shopping area.

 

It is also a five-minute walk from Midosuji Avenue, which is lined with major international luxury brands and department stores, CDL said.

 

Thursday&rsquo s announcement marks the property developer&rsquo s third hotel acquisition of 2023.

 

It followed the purchase of a property in Myeongdong, Seoul, for 140 billion won (S$143.9 million) in July, and news of the planned acquisition of a Sofitel hotel in Brisbane, Australia for A$177.7 million (S$159.2 million) in March.

 

&ldquo The lifestyle hotel is well placed to benefit from the positive market recovery momentum amid robust demand from international visitors,&rdquo CDL said.

 

&ldquo Inbound tourism from the rest of Asia has continued to grow, while the weaker yen has sparked a rebound in US and European tourists, exceeding pre-pandemic levels,&rdquo it added.

 

It also cited China&rsquo s recent lifting of restrictions on group tours to Japan as &ldquo another positive boost&rdquo for the country&rsquo s hotel sector.

 

CDL, which marks its 60th anniversary in September, posted a 12.4 per cent rise in revenue from its hotel operations segment to S$672.9 million for the first half ended Jun 30, 2023.

 

The property developer also reported a 94.1 per cent drop in net profit to S$66.5 million in H1 2023, from S$1.1 billion previously.

 

Analysts at UOB Kay Hian (UOBKH), OCBC Investment Research (OIR) and Citi Research have kept their &ldquo buy&rdquo calls on City Developments (CDL), but have issued different target prices for the real-estate group.

 

UOBKH&rsquo s Adrian Loh has announced an unchanged target price of $8, noting that CDL had a muted 1HFY2023 results ended in June, with its strong ebitda growth overshadowed by financing costs and one-off items.

 

CDL reported a revenue of $2.7 billion for the 1HFY2023, an 84% increase y-o-y which was boosted by the completion of the Piermont Grand executive condominium (EC), resulting in full revenue recognition of the project.

 

Loh notes that its ebitda of $478 million (excluding divestment gains and impairments) was 48% higher than the same period a year ago, and while it beat his expectations, it missed consensus estimates.

 

CDL&rsquo s $66 million net profit was substantially lower than the 1HFY2022 which had seen substantial gains from the divestment of its hotel in Seoul and a gain from the deconsolidation of CDL Hospitality Trusts, says Loh.

 

CDL&rsquo s special interim dividend of 4 cents was also lower than the 12 cents announced a year ago.

 

Loh notes that CDL&rsquo s $34 million impairment loss witnessed a 20-50 basis points (bp) in cap rate expansion, leading to a drop in its valuation. In addition to the impairment loss, there was also a fair value loss on property-linked notes for an Australian project ($20 million).

 

&ldquo Although financing costs in the UK have risen by four times vs same period last year, management sees near-term stabilisation, and continues to believe that its UK investment properties have bright prospects,&rdquo says Loh.

 

Meanwhile, Loh notes that CDL&rsquo s Singapore residential sector looks stable, with the sales launch of Tembusu Grand, a new EC launch in 1Q2024, and Central Mall redevelopment in early 2024.

 

CDL&rsquo s hotel operations remain &ldquo a bright light&rdquo with a 69% increase in ebitda with occupancy increase by 12 percentage points (ppt) y-o-y to 79% and revenue per available room (RevPAR) up 43% to $152.

 

Loh says that new projects in CDL&rsquo s pipeline in the UK and Japanese living assets present a strong outlook, and notes that the company is looking to get back into China.

 

Finally, Loh notes that CDL&rsquo s balance sheets have been slightly weaker over the past six months, with the upper limit of its net gearing reaching 65% vs 57% at end 1HFY2023 vs end 1HFY2022.

 

&ldquo We also note that its interest cover has declined from 9.8x at end-2022 to 2.8x at end 1HFY2023, and its cash and available committed credit facilities had fallen from $4.1 billion at end 2022 to $3.4 billion at end 1HFY2023,&rdquo he adds.

 

For this reason, Loh has put through a material 65% downgrade of his FY2023 earnings, but notes that this is &ldquo very much in the rear-view mirror&rdquo given that they mostly relate to one-off items in 1HFY2023, as well as higher-than-expected financing costs. He says that the outlook appears reasonably solid with interest rates likely to decline over the next 12 months, and continued robust performance from its property development and hotel arms.

 

Loh&rsquo s target price is pegged to a 40% discount to his assessed revalued net asset value (RNAV) of $14.10, which is largely in line with the company&rsquo s historical discount to RNAV.

 

&ldquo We note that CDL disclosed at its results briefing that its RNAV (including the revaluation of its hotel portfolio) was $18.97 per share as at end-1HFY2023. Applying its 10-year trough P/B of 0.64x to its FY2023 book value would imply a share price of $6.45,&rdquo he says.

 

While the research team at OIR has also retained its &ldquo buy&rdquo call, it has reduced its target price from $8.91 to $8.87, citing strong revenue but &ldquo weak core earnings recognition&rdquo as its reason.

 

The analysts say that CDL has shown clear signs of recovery from the pandemic across various business operations, and note that the company has been proactive in reconstituting its portfolio to unlock value for shareholders.

 

This includes the divestment of assets at a premium to their book values and the redevelopment of some of its older commercial properties in Singapore to benefit from the government' s Central Business District (CBD) Incentive Scheme.

 

However, notwithstanding these positives, they believe the softer global economic outlook and higher interest rates could be potential dampeners to its growth prospects.

 

In addition, the analysts say that management pushed out its target of achieving $5 billion in assets under management from 2023 to 2024 due largely to lacklustre capital market conditions.

 

&ldquo After adjustments, our fair value estimate is reduced from $8.91 to $8.87,&rdquo they say.

 

Finally, Citi&rsquo s Brandon Lee presents as the most positive on CDL, with the highest target price of $10.29, as he is optimistic about the group&rsquo s overseas acquisitions.

 

Lee notes that CDL continues to push for acquisitions in UK, China, Australia, Japan and Vietnam, and will focus on the private rented sector for its asset classes.

 

Lee&rsquo s target price is set at a 25% discount to its RNAV of $14.06, similar to where it traded at during the past few global downcycles.

 

&ldquo Our key assumptions include a 2%/3%/2% rise in residential prices in Singapore in 2022/2023/2024, flat cap rate changes of +6%/+3%/-5% in Singapore Grade A office rents in 2022/2023/2024, flat cap rate changes and 5% rise in 2022 RevPAR following the 1% improvement in 2021 for hospitality, and flat cap rate changes and 1-2% rise in Singapore retail rents,&rdquo he says.

CGS-CIMB Research analysts Natalie Ong and Lock Mun Yee are reiterating their &ldquo overweight&rdquo rating on hospitality S-REITs on strong tourism recovery, with CapitaLand Ascott Trust (CLAS) HMN 0.00% as their top pick.

 

In their July 28 report, the analysts note that CLAS, CDL Hospitality Trust (CDLHT) J85 -0.84% and Far East Hospitality Trust (FEHT) Q5T -0.77% delivered 1HFY2023 y-o-y DPU growth of 19.3% to 23.3% as higher interest cost was offset by stronger operating performance.

 

They further highlight that 2QFY2023&rsquo s revenue generated per room (RevPAR) in most geographies were 100% to 127% of 2QFY2019 levels, except New Zealand, China and Vietnam, which underperformed.

 

Ong and Lock have an &ldquo add&rdquo call on CLAS with a target price of $1.27. The analysts like the REIT for its diversified and balanced portfolio, which provides both stability and upside exposure to the hospitality sector as well as portfolio reconstitution opportunities.

 

&ldquo CLAS&rsquo s geographically diversified portfolio of service residences, business hotels and extended stay assets strikes a balance between stable and growth income, with long-stay demand providing stability while shorter-stay accommodations allow it to drive rates,&rdquo the analysts add.

 

CGS-CIMB also reiterates its &ldquo add&rdquo call on CDLHT with a target price of $1.55. The analysts believe that the REIT is poised to benefit from the hospitality recovery in its key geographies of Singapore, Australia, the UK and Japan.

 

With 66% of its assets under management in Singapore, CDLHT is a proxy for the recovery of the Singapore hospitality sector. The asset enhancement initiatives at several of its properties as well as the strong demand across its key markets should support further RevPAR growth, Ong and Lock point out.

 

Lastly, the analysts maintain their &ldquo add&rdquo call on FEHT with a target price of 77 cents. Ong and Lock think that FEHT is a potential re-rating play, with geographical diversification being the key re-rating catalyst.

 

The analysts add that the Singapore pure play has strong corporate demand for service residences, which has pushed occupancies and RevPAR above 2019 levels. Meanwhile, its newly revamped hotel offerings should drive room rates. Including the capital gain distributions from the divestment of Central Square, FEHT offers 5.9% FY2023 dividend yield, CGS-CIMB highlights.

 

CDL Hospitality Trusts : J85 -0.84% (CDLHT) posted a 23 per cent rise in distribution per stapled security of S$0.0251 for the first half ended Jun 30, from S$0.0204 in the year-ago corresponding period.

 

Vincent Yeo, chief executive of CDLHT&rsquo s managers, said strong leisure travel and the resumption of events have been key growth drivers across most geographical markets.

 

CDLHT&rsquo s revenue was up 20.9 per cent to S$119.2 million for the half-year period, from S$98.6 million in the year-ago period. Meanwhile, net property income grew 23.3 per cent year on year to S$62.9 million from S$51 million.

 

That brings the total income available for distribution, after retention for working capital, to S$31.2 million. This is 23.8 per cent higher than the S$25.2 million recorded in the same period last year.

 

The distribution will be paid out on Aug 29, after the CDLHT&rsquo s books are closed on Aug 7.

 

Revenue per available room (RevPAR) grew across most of CDLHT&rsquo s markets. Its Singapore properties booked a 45.8 per cent rise year on year in RevPAR to S$182, surpassing pre-pandemic levels.

 

&ldquo Notably, 12 of our portfolio hotels have seen RevPAR in H1 2023 exceeding H1 2019 pre-pandemic levels, even though Chinese tourists have yet to return in full,&rdquo Yeo said.

 

The managers noted that overall performance &ldquo would have been much stronger&rdquo if Grand Copthorne Waterfront Hotel did not close its entire conference facilities for renovation from April to June this year.

 

The stapled group had also progressively removed close to 34,000 room nights from inventory for ongoing refurbishment works in H1 2023.

 

CDLHT&rsquo s gearing stood at 37.9 per cent as at Jun 30, implying debt headroom of about S$715.3 million, assuming a gearing limit of 50 per cent.

 

It also has S$63.8 million in cash reserves and S$585.2 million in credit facilities, the managers said.

 

RHB Group Research is maintaining its &ldquo neutral&rdquo call on CDL Hospitality Trust (CDLHT) J85 -0.83% with an unchanged target price of $1.25, as data has shown a steady growth in Singapore visitor arrivals and a promising 2024 with major concerts and air shows coming up.

 

&ldquo However, we expect the return of high-spending Chinese tourists to remain weak, and see a slow recovery in corporate travel. CDLHT also faces challenges from rising interest costs and foreign exchange (FX) impact,&rdquo says analyst Vijay Natarajan.

 

In his July 12 report, the analyst notes that the 6.3 million visitors of 1H2023 was equivalent to 2022&rsquo s numbers, or 67% of pre-pandemic levels. Most visitor arrivals were fuelled by the key markets of Indonesia, India and Malaysia.

 

Thanks to the higher visitor arrivals, hotel revenue per available room (RevPAR) for 5M2023 surged 21% from pre-Covid levels (5M2019). This was a result of a strong 32% increase in room rates from pent-up demand from the tourism space, with the high-end segment seeing a heightened demand.

 

&ldquo Overall, we expect full-year Singapore RevPAR to come in 15-20% above pre-pandemic levels and flatten out next year. This will remain the key driver of CDLHT&rsquo s net profit income (NPI), with two-thirds of its portfolio positioned on the mid-tier to upscale segment of the Singapore market,&rdquo writes Natarajan.

 

Meanwhile, the analyst still sees room for upside in CDLHT&rsquo s Singapore hotel valuations.

 

The recent sale of Park Royal Kitchener Hotel at a 24% premium is a strong indication of continued investor interest in the Singapore hospitality market, which will likely have a reverberating effect for upscale hotels.

 

&ldquo The sale, in our view, will likely result in positive valuation rerating for upscale hotels, benefitting the REIT&rsquo s Singapore assets,&rdquo says Natarajan.

 

CDLHT&rsquo s gearing at 37.5% as at 1Q2023 is modest according to the analyst, but will be expected to rise by 1-2 percentage points (ppts) with the ongoing progressive payments for UK build-to-rent developments and asset enhancements in Singapore.

 

The trust&rsquo s management has said that it is on the lookout for acquisition opportunities, with a focus on overseas markets such as UK and Japan. It also sees opportunities from over-leveraged buyers.

 

Overall, Natarajan remains cautious of CDLHT and has three reasons to support his stance: slow recovery of China visitors coming back to Singapore CDLHT&rsquo s earnings are weighed down by rising interest costs, as it has among the lowest debt hedges among SREIT&rsquo s at about 56% and has nearly half of its debt maturing in 2023-2024 as well as performance at its overseas markets has been mixed and the analyst expects the rising SGD to weigh on overseas earnings.

 

&ldquo We expect Chinese visitor recovery to remain patchy and see a return to pre-pandemic levels only by 2025, in addition to rising inflationary pressures and dissipation of pent-up demand posing challenges for visitor arrivals,&rdquo adds the analyst.

CGS-CIMB Research analysts Natalie Ong and Lock Mun Yee have maintained their &ldquo add&rdquo call on CDL Hospitality Trusts J85 0.00% (CDLHT) J85 0.00% on the back of its robust Singapore and Japan portfolios.

 

In their June 13 report, the analysts note that the Singapore hospitality sector continues to gain strength, with January to April 2023 mid-tier hotel revenue per available room (RevPAR) at around 117% of 2019 levels, ahead of their previous FY2023 forecast of 107% of 2019 levels.

 

To this end, the analysts raise their FY2023 Singapore RevPAR projection to $198 or 116% of 2019 levels, in line with the current RevPAR trend that reflects hoteliers&rsquo strong pricing power.

 

For its FY2023 ended December, the analysts forecast CDLHT to register a y-o-y net property income (NPI) growth of $32.8 million or 26.5%, mainly driven by Singapore and Japan on the back of higher room rates and improving occupancy. This is despite higher manpower and utility costs.

 

&ldquo With 60% of its FY2023 NPI attributed to Singapore hotels, CDLHT is a proxy for the island state&rsquo s tourism recovery,&rdquo the analysts add.

 

Based on their forecasts, CDLHT&rsquo s revenue is likely to grow by 21.1% y-o-y in FY2023. On top of the favourable market conditions that should support the RevPAR of its existing portfolio, contributions from its new portfolio additions will also support stronger revenue momentum, the analysts say.

 

Announced in 2021, contributions from build-to-rent apartment The Castings in the UK will start from 3QFY2024 with a po-forma stabilised yield of 5.1% based on projected cost of $141.9 million.

 

Citing UK property operator urbanbubble&rsquo s 4Q22 Manchester Monitor, the analysts note that Manchester&rsquo s residential market registered 20.4% y-o-y growth in rents in December 2022, driven by an acute rental supply shortage. As such, the Ong and Lock believe there is upside potential to yield when The Castings comes online.

 

Meanwhile, the redevelopment of Moxy Clarke Quay in Singapore was announced in 2019 with the expected completion date of FY2025. The property has a stabilised pro-forma NPI yield of 5.6% based on the maximum purchase consideration of $475 million.

 

As strong pricing power and yield management strategies by hoteliers have resulted in room rates trending 9%-27% above pre-Covid levels over the past 12 months, the analysts expect NPI yields to come in at 6%-6.2% when Moxy Clarke Quay turns operational.

 

&ldquo The Castings and Moxy Clarke Quay were expected to deliver a NPI yield-on-cost of 5.1% and 5.6%, respectively. However, strong growth in Manchester rents and Singapore average room rates should translate to better-than-projected NPI yield of 5.5%-6.2%, in our view,&rdquo they add.

 

Ong and Lock have lowered their FY2023 and FY2024 DPU projection by 11.% and 1.7% respectively, while raising the FY2024 DPU by 2.8%. This is on the back of stronger performance from CDLHT&rsquo s Singapore and Japan portfolios, lower UK and Germany earnings projections and higher operating expenses due to higher payroll and utilities cost, among others.

 

CGS-CIMB&rsquo s target price has been lowered to $1.54 from $1.58 previously on higher beta and cost of equity assumptions as they factor in more tepid business and consumer spending.

 

&ldquo We continue to like CDLHT for its portfolio that is entrenched in the Singapore hospitality sector, providing FY2023/FY2024 DPU yield of 5.5%/6.6%,&rdquo they add.

 

CDL Hospitality Trust (CDLHT) on Friday (Apr 28) posted a 35 per cent increase in its net property income (NPI) for its first quarter ended Mar 31, 2023, to S$32.7 million, up from S$24.2 million a year earlier.

 

Gross revenue for the stapled group, comprising CDL Hospitality Reit and CDL Hospitality Business Trust, also grew 31.5 per cent to S$60.8 million.

 

This comes on the back of largely higher revenue per available room across most of its properties, except those in New Zealand and Maldives. Those markets also saw a dip in NPI.

 

In Germany, NPI declined due to a weakening euro against the Singapore dollar, coupled with a &ldquo seasonally weak first quarter&rdquo , the manager said.

 

The group&rsquo s net property income from its core market, Singapore, experienced the biggest increase of 82.5 per cent &ndash or an absolute gain of S$8.8 million to S$19.6 million in Q1 2023.

 

The managers said they expect to see continued growth the hospitality sector in Singapore, particularly as Chinese tourists return to international travel.

 

&ldquo The managers are confident of the medium- to long-term prospects of the Singapore market and will continue to assess opportunities to invest through asset enhancements to strengthen the competitiveness of its hotels in CDLHT&rsquo s core market.&rdquo

 

CDLHT&rsquo s gearing stood at 37.5 per cent in Q1 this year, up slightly from 36.6 per cent in the last quarter.

 

While the trust expects business performance to improve on Chinese travellers&rsquo return, it added that higher interest rates would continue to impact borrowing costs.

 

&ldquo While inflationary cost pressures, higher energy prices and funding costs may affect CDLHT&rsquo s performance in the near to medium term, the positive trends in the hospitality industry are expected to offset some of these costs, particularly in strong markets or periods of high demand,&rdquo said the manager.