Investor watchdog also asks developer&rsquo s directors to make statements on current situation on SGXNet first, instead of via the media

 

SINGAPORE&rsquo S investor watchdog has asked CDL : J85 +0.63%, which is currently embroiled in a boardroom tussle, to clarify the role of its former adviser Catherine Wu, as well as the appointment process of its newly appointed directors and management reporting lines.

 

The property developer called for a trading halt on Feb 26 amid a conflict between its executive chairman Kwek Leng Beng and his son and group chief executive, Sherman Kwek.

 

The crux of the disagreement lies in the nomination of two new directors at CDL &ndash Jennifer Duong Young and Wong Su-Yen &ndash as independent non-executive directors on Feb 7, which Kwek Leng Beng alleges is part of an &ldquo attempted coup&rdquo to oust him.

 

The younger Kwek had also stated that the &ldquo primary reason&rdquo for the ongoing dispute at CDL is &ldquo a very serious issue of corporate governance&rdquo involving Dr Wu, who has since resigned from her role as an independent adviser to the board of Millennium & Copthorne Hotels (M& C), a subsidiary of CDL.

 

In a letter to the developer&rsquo s board and management on Thursday (Mar 6), Securities Investors Association (Singapore), or Sias, asked what roles Dr Wu had played as a director on the board of M& C from June 2022 to January 2024. Among other things, the watchdog wanted to know if her performance was assessed by the M& C board, and if there had been a rigorous search and nomination process for the role.

 

Sias also asked if there is a replacement for the position, given Wu&rsquo s resignation, and who will oversee the selection process and appointment.

 

On the issue of the directors, the watchdog asked CDL to clarify the identification and appointment process for the two newly appointed directors.

 

Sias chief executive officer David Gerald wanted to know if the directors had requested to meet the nominating committee of the board and adhered to the &ldquo best corporate governance practices&rdquo in their appointment processes.

 

&ldquo Specifically with regards to the current board dispute, Sias would like to seek clarity on the governance framework currently in place especially with regards to director nomination, selection and appointment,&rdquo it added in its e-mail to the property developer.

 

Sias also raised questions on the management structure at CDL. Specifically, Sias wanted to know the reporting lines for the group CEO, Sherman Kwek, and group chief operating officer (COO) Kwek Eik Sheng. The latter is the nephew of the elder Kwek.

 

Given the ongoing saga, the watchdog wanted to know how the board would ensure effective decision-making during this period, and the key performance indicators in place to assess the performance of both the group CEO and group COO.

 

Several other questions raised by Sias related to the financial performance of the property developer. These include the strategic direction for CDL in view of its underperforming share price, as well as the strategic value of its proposed privatisation of Millennium & Copthorne Hotels New Zealand.

 

The investor watchdog also asked directors to commit to making statements on the current situation on SGXNet first, instead of via the media. SGXNet is a web-based platform for listed issuers to upload announcements.

 

Sias added: &ldquo This would also ensure that any statements and disclosure made by the directors comply with SGX listing rules, and that no material information is selectively disclosed to any parties.&rdquo

Good boards and management usually do not have soap-opera-worthy drama

 

COMMON wisdom holds that independent directors in family-controlled listed companies are an essential safeguard against family members on the board and management colluding at the expense of minority shareholders.

 

The good news for minority shareholders of City Developments Ltd (CDL) is that they do not have to worry about controlling-family members working in cahoots. The bad news is the newly revealed family feud is still a corporate governance red flag that could hurt the company&rsquo s standing in environmental, social and governance (ESG) ratings and indices.

 

CDL executive chairman Kwek Leng Beng on Wednesday (Feb 26) alleged that Sherman Kwek, his son and CDL chief executive officer, had acted with a group of other CDL directors to make major changes to the company&rsquo s board and bypass its nominating committee.

 

Describing the actions as an &ldquo attempted coup&rdquo , Kwek Leng Beng has begun legal proceedings &ldquo to set things right&rdquo . He also intends to remove Sherman Kwek as CEO when &ldquo appropriate&rdquo , which probably means when possible, since he does not appear to have enough control of the board at the moment to fire his son.

 

Sherman Kwek described his father&rsquo s actions as &ldquo incredibly disappointing&rdquo and made without the support of the majority of the board.

 

On Thursday night, Sherman Kwek said that the root of the dispute lay in attempts by him and a majority of directors on the board to curtail the role of Dr Catherine Wu, who is Kwek Leng Beng&rsquo s adviser as well as an adviser to the board of CDL hospitality subsidiary Millennium & Copthorne Hotels. Sherman Kwek alleged that Dr Wu has had a &ldquo long relationship&rdquo with his father, and that she had interfered in matters &ldquo well beyond her scope&rdquo .

 

Regardless of who is correct &ndash and both sides could very well be &ndash the dispute raises governance questions at CDL.

 

If the senior Kwek&rsquo s account of events is correct and there were improper changes to the board&rsquo s structure and appointments, investors would be rightly concerned about the effectiveness of the independent directors on the board, and whether minority shareholders&rsquo rights are properly guarded.

 

If the son&rsquo s version is correct, then investors will have to contend with the possibility of a prolonged tussle for control of the company. The elder Kwek continues to wield significant influence at CDL and its ultimate parent, the Hong Leong Group, and might not easily yield if the two cannot reconcile their differences.

 

However the potential lawsuit develops, perhaps the biggest factor in this dispute is where the rest of the Kwek clan stands.

 

The clan &ndash which would include the family of the late Kwek Leng Joo, who was Kwek Leng Beng&rsquo s brother and deputy chairman of CDL &ndash controls just under half of CDL&rsquo s stock through various vehicles. It is not known how control of the family stake is organised internally, but it is probably safe to say that neither party can go it alone all the way without backing from the family. It is simply unfeasible to run CDL without the support of its 49 per cent shareholder.

 

If you are an investor, you are probably feeling some discomfort here. Good boards and management usually do not have soap-opera-worthy drama.

 

These issues matter for CDL because governance is an important factor in most funds&rsquo and institutional investors&rsquo assessment systems.

 

CDL, which has made sustainability a core part of its branding, is also included in a number of ESG and sustainability-related indices. CDL&rsquo s environmental sustainability is probably unaffected by this. Buildings that are already green are not going to stop being green because the chairman and CEO do not get along.

 

But ESG rating systems pay attention to corporate governance and negative news as well, and this dispute could affect those scores.

 

So there might be a small but higher risk of CDL getting ESG downgrades, which might affect fund and institutional demand for the stock. This is on top of regular stock downgrades by analysts who are not thrilled about the leadership uncertainties.

 

Looking beyond indices and ESG scores, an investor looking to place a responsible investment in a sustainable company is not trying to only make the world a better place. The investor wants to make money too.

 

There are three potential scenarios that an investor might think about:

 

Quick, peaceful resolution. If the court rules quickly for the elder Kwek, it would hasten the younger Kwek&rsquo s departure and end the fight for the company. It is also possible in theory that there is a tense family dinner that nobody wants to attend. As everyone drinks the tea that is extra bitter tonight, a youngling breaks the awkward silence to ask: &ldquo Is money bad?&rdquo It breaks the dam. &ldquo I just want what is best for you.&rdquo &ldquo I just want to make you proud.&rdquo Hugs and tears. We&rsquo re back in business!

 

Long fight, but business continues. This might be the least preferred outcome since the company could be operating under sub-optimal leadership until matters are resolved.

 

Nobody can get along let us break this up and go our separate ways. There is hope that such an outcome could unlock value in CDL&rsquo s assets, which would all be up for revaluation.

 

This fight could yet end positively for investors who are willing to take the risk. It would be like a riskier green investment with the poten

 

Among the REITs that have released their financial results so far, CDL Hospitality Trusts (CDLHT) stands out for its high proportion of floating rate debt.

 

As at Dec 31, 2024, CDLHT has 32.1% of its outstanding debt on fixed rates, while 67.9% are on floating rates.

 

Vincent Yeo, CEO of the manager, says this was deliberate throughout 2024 &ldquo in anticipation of interest rate increases or decreases, which have actually happened&rdquo .

 

Speaking to the media on Jan 27 at the release of CDLHT&rsquo s FY2024 results, Yeo says the manager will increase its fixed rate borrowings at an &ldquo opportune time&rdquo .

 

With assets in eight countries, CDLHT has loans denominated in five currencies. From the largest loan quantum to the smallest, CDLHT&rsquo s loans are in Singapore dollars (44.5%), British pounds (26.6%), euros (20.4%), US dollars (4.4%) and Japanese yen (4.1%).

 

As at end-2024, all of CDLHT&rsquo s yen loans are on fixed rates, while all of its US dollar loans are on floating rates. Of the remainder, 86.6% of its Singapore dollar loans are on floating rates &mdash the same for 59.8% of its British pound loans and 44.4% of its euro loans.

 

Refinancing for loans maturing in 1H2025 is underway. This involves a multi-currency $68.3 million floating revolving credit facility (RCF) that expired in January, a $79.8 million Singapore dollar floating RCF expiring in March and a $62.6 million euro-denominated fixed term loan due in April. As at Dec 31, 2024, some 34.3% of CDLHT&rsquo s debt &mdash or around $461 million &mdash is due in 2025.

 

&ldquo We expect to achieve all the refinancing we need at potentially a better rate,&rdquo says Yeo. He told analysts in a separate briefing that CDLHT forecasts flat interest costs for FY2025, which are currently at 3.0%, but also anticipates potential savings.

 

According to the manager, CDLHT is poised to benefit from further rate cuts, &ldquo albeit at varying velocities&rdquo . In addition, management expects a faster pace of such cuts in Europe, which should bode well for that fifth of its debt &mdash of which half are on floating rates.

 

Meanwhile in the UK, the Bank of England (BOE) cut interest rates to 4.5% from 4.75% at the start of February, and governor Andrew Bailey says rates remain on a downward path.

 

Analysts have highlighted CDLHT&rsquo s low fixed rate debt profile. DBS Group Research analysts Geraldine Wong and Derek Tan say CDLHT &ldquo continues to be one of the top proxies&rdquo within the S-REIT space for a turn in interest rates. &ldquo Notably, CDLHT saw a 40 basis point (bp) q-o-q dip in borrowing costs [to 4.0%], after peaking in 3QFY2024.&rdquo

 

In a Feb 3 note, Wong and Tan say they are optimistic that CDLHT will be a &ldquo top beneficiary&rdquo of lower interest rates once cuts materialise in 2025.

 

While the DBS analysts think CDLHT&rsquo s gearing remains at a &ldquo comfortable&rdquo 40.7% as at Dec 31, 2024, RHB Bank Singapore analyst Vijay Natarajan thinks gearing is &ldquo on the high side&rdquo and sees &ldquo limited room&rdquo for further fully debt-funded acquisitions.

 

The RHB analyst has a different perspective: While CDLHT&rsquo s high proportion of floating rate debt could help the REIT reprice its loans downward, rate cuts are not guaranteed. The REIT remains exposed to interest rate volatility with only 32% of its debt being fixed, says Natarajan.

 

Citing challenges to CDLHT&rsquo s Singapore hotel portfolio, such as the absence of large-scale events and &ldquo softening&rdquo visitor spending, Natarajan remains &ldquo neutral&rdquo on CDLHT while trimming his target price to 93 cents from $1.

 

His Jan 31 report represents yet another cut to his target price for the REIT, which has only fallen since September 2023, when the estimate was at $1.25.

 

Likewise, DBS&rsquo s Wong and Tan are staying &ldquo buy&rdquo on CDLHT but with a lower target price of $1.10 from $1.20 previously.

 

Mitigating volatility

 

On the other end of the scale is Elite UK REIT, whose assets are all located in the UK.

 

As at Dec 31, 2024, fixed rate loans comprise 86% of Elite UK REIT&rsquo s outstanding debt, up from 63% at end-2023.

 

The REIT manager says its high proportion of fixed rate loans is a way to mitigate volatility from interest rate risk.

 

RHB&rsquo s Natarajan says these were hedged at &ldquo competitive rates&rdquo , which is expected to result in annual savings of GBP2 million ($3.38 million).

 

Cost of borrowing fell 30bps y-o-y to 4.9% at end-2024. For context, the REIT was working to bring down its leverage ratio, which was a greater priority during the year.

 

Following its successful GBP28 million preferential offering in January 2024, Elite UK REIT reduced its leverage ratio from 50.0% at end-2023 to 43.4% at end-2024.

 

Similarly, its net gearing ratio declined from 47.5% at end-2023 to 42.5% at end-2024.

 

Elite UK REIT&rsquo s total debt as at end-2024 is GBP190.5 million, down from GBP221.3 million a year earlier.

 

Elite UK REIT has no debt maturing in 2025 and 2026 and refinancing is only due in 2027.

 

Phillip Securities Research analyst Liu Miaomiao expects &ldquo minimal immediate impact&rdquo from the BOE&rsquo s recent rate cut, with Elite UK REIT&rsquo s cost of borrowing forecast to remain at 4.9% in FY2025. 

Distributable income drops 10.9% to S$35.4 million

CDL Hospitality Trusts&rsquo recently acquired living assets in the United Kingdom will contribute to the group&rsquo s sustained growth and ensure it has a diversified and balanced income profile, the stapled group&rsquo s managers said at its full-year results briefing on Monday (Jan 27).

 

&ldquo The idea behind our change in our mandate to include living asset classes is to secure stable, long-term growth and income resilience. Generally, the demographic profile for higher education is very favourable,&rdquo said Vincent Yeo, chief executive officer of CDLHT&rsquo s managers. 

 

The 404-bed Benson Yard, a purpose-built student accommodation (PBSA) building in Liverpool which CDLHT acquired in December 2024, had a committed occupancy of 95.5 per cent as at Dec 31. Leasing for the upcoming academic year began a few months ago and is currently ahead of the previous academic year&rsquo s pace, the managers said. 

 

&ldquo The prospects for these assets are very good notwithstanding the weak UK economy,&rdquo Yeo said.

 

The group also sees &ldquo very strong demand&rdquo for The Castings, a residential build-to-rent asset it owns in Manchester. With high interest rates, mortgage rates are at a very high level in the UK, fuelling demand from renters, Yeo said.

 

For the second half, CDLHT reported a distribution per stapled security of S$0.0281 for the second half ended December, down 11.9 per cent from S$0.0319 in the previous corresponding period.

 

The distribution for H2 will be paid on Feb 28, after books closure on Feb 6.

 

Distributable income fell 10.9 per cent to S$35.4 million for H2, from S$39.8 million in the same period the year before.

 

The lower distribution and DPS came as net property income contribution from a residential property in Manchester was insufficient to cover interest costs during the gestation period, said CDLHT&rsquo s managers.

 

They also attributed the decline to higher interest costs and lower net property income (NPI) across its portfolio, as well as the absence of a one-off capital distribution of S$900,000 arising from the liquidation proceeds of an Australian subsidiary.

 

Interest costs were higher due to an increase in funding costs on the group&rsquo s floating rate loans, refinancing of fixed rate loans and amounts drawn to finance a UK project, as well as asset upgrading works. 

 

Excluding the one-off liquidation proceeds, total distribution and DPS would have declined by 8.9 per cent and 9.9 per cent, respectively, year on year.

 

Revenue decreased by 3.9 per cent to S$132.9 million, from S$138.3 million the year before. NPI fell 9 per cent on the year to S$68.7 million for the half-year period, from S$75.5 million.

 

The decline in revenue and NPI comes as demand in some markets moderated after a period of &ldquo extraordinary post-pandemic growth&rdquo , said the managers.

 

The stapled group&rsquo s portfolio, which is worth more than S$3 billion as at Dec 31, consists of property in eight countries, including Singapore, Japan, the UK, Australia and the Maldives.

 

In the group&rsquo s core market of Singapore, RevPar dropped 10.1 per cent to S$195 from S$217 in H2 FY2023, while the average occupancy rate fell four percentage points to 79.1 per cent.

 

Its W Hotel in the Republic was affected by the aftermath of June&rsquo s oil spill and weaker demand, which came partially from a &ldquo non-repeating buyout group that outgrew the size of the hotel&rdquo , said the managers.

 

They also noted that performance in its Singapore portfolio slowed as city hotels faced stiffer competition amid new hotel supply.

 

CDLHT&rsquo s managers expect the first quarter of 2025 to be &ldquo more muted&rdquo due to the absence of high-profile concerts, the Singapore Airshow and the shift of Ramadan.

 

But they are positive that the Republic&rsquo s tourist attractions, such as Minion Land at Universal Studios Singapore that is set to open on Feb 14, will continue to drive demand.

 

While Singapore recorded 15.1 million visitor arrivals year-to-date, surpassing the lower bound of the Singapore Tourism Board&rsquo s projections, its top three source markets &ndash China, Indonesia and India &ndash have not fully recovered to pre-pandemic levels, the managers said. 

 

This suggests room for potential upside which could support the sector&rsquo s recovery through 2025 and beyond. 

 

Inclusive of retained working capital and capital distribution for the full year, CDLHT&rsquo s FY2024 DPS stood at S$0.0532, down 6.7 per cent from S$0.057 in the year-ago period.

 

Total distribution for the period was 5.8 per cent lower at S$66.9 million from S$71 million previously.

 

Yeo said: &ldquo While the market is adjusting to new demand normalisation, the competitive landscape in Singapore has also heightened with new hotels emerging.&rdquo

 

But he is &ldquo optimistic about the prospects for the Singapore market in the medium term&rdquo .

 

&ldquo Our new acquisitions will augment our income streams in 2025, while the increased exposure in the living asset class will also enhance the stability of the portfolio income,&rdquo he added.

 

He also expects the potential easing of interest rates, particularly in Europe, to benefit the group.

 

CDLHT&rsquo s aggregate leverage as at Dec 31 stood at 40.7 per cent, with debt headroom of S$610 million at the 50 per cent gearing limit. Its weighted average cost of debt was 4 per cent, and its interest coverage ratio was 2.3 times as at end-December last year.

 

The group has S$231.2 million of cash and undrawn revolving credit facilities, as well as S$294.8 million in uncommitted bridge loan facilities.

Distributable income drops 10.9% to S$35.4 million

 

THE managers of CDL Hospitality Trusts : J85 -1.73% (CDLHT) on Monday (Jan 27) posted a distribution per stapled security (DPS) of S$0.0281 for the second half ended December, down 11.9 per cent from S$0.0319 in the previous corresponding period.

 

The distribution for H2 will be paid on Feb 28, after books closure on Feb 6.

 

Distributable income fell 10.9 per cent to S$35.4 million for H2, from S$39.8 million in the same period the year before.

 

The lower distribution and DPS came as net property income contribution from a residential property in Manchester was insufficient to cover interest costs during the gestation period, said CDLHT&rsquo s managers.

 

They also attributed the decline to higher interest costs and lower net property income (NPI) across its portfolio, as well as the absence of a one-off capital distribution of S$900,000 arising from the liquidation proceeds of an Australian subsidiary.

 

Interest costs were higher due to an increase in funding costs on the group&rsquo s floating rate loans, refinancing of fixed rate loans and amounts drawn to finance a UK project, as well as asset upgrading works. 

 

Excluding the one-off liquidation proceeds, total distribution and DPS would have declined by 8.9 per cent and 9.9 per cent, respectively, year on year.

 

The half-year period&rsquo s total distribution and DPS figures come after factoring in retained working capital, as well as capital distribution of S$4.8 million. Without the retention, CDLHT&rsquo s DPS would have been 11 per cent lower at S$0.0308 compared with S$0.0346 for H2 FY2023. 

 

Revenue decreased by 3.9 per cent to S$132.9 million, from S$138.3 million the year before. NPI fell 9 per cent on the year to S$68.7 million for the half-year period, from S$75.5 million.

 

The decline in revenue and NPI comes as demand in some markets moderated after a period of &ldquo extraordinary post-pandemic growth&rdquo , said the managers.

 

Revenue per available room (RevPar) was recorded in most of CDLHT&rsquo s portfolio, except Singapore and New Zealand.

 

The stapled group&rsquo s portfolio, which is worth more than S$3 billion as at Dec 31, consists of property in eight countries, including Singapore, Japan, the UK, Australia and the Maldives.

 

In the group&rsquo s core market of Singapore, RevPar dropped 10.1 per cent to S$195 from S$217 in H2 FY2023, while the average occupancy rate fell four percentage points to 79.1 per cent.

 

Its W Hotel in the Republic was affected by the aftermath of June&rsquo s oil spill and weaker demand, which came partially from a &ldquo non-repeating buyout group that outgrew the size of the hotel&rdquo , said the managers.

 

They also noted that performance in its Singapore portfolio slowed as city hotels faced stiffer competition amid new hotel supply.

 

CDLHT&rsquo s managers expect the first quarter of 2025 to be &ldquo more muted&rdquo due to the absence of high-profile concerts, the Singapore Airshow and the shift of Ramadan.

 

But they are positive that the Republic&rsquo s tourist attractions, such as Minion Land at Universal Studios Singapore that is set to open on Feb 14, will continue to drive demand.

 

Inclusive of retained working capital and capital distribution for the full year, CDLHT&rsquo s FY2024 DPS stood at S$0.0532, down 6.7 per cent from S$0.057 in the year-ago period.

 

Total distribution for the period was 5.8 per cent lower at S$66.9 million from S$71 million previously.

 

Vincent Yeo, chief executive of CDLHT&rsquo s managers, said: &ldquo While the market is adjusting to new demand normalisation, the competitive landscape in Singapore has also heightened with new hotels emerging.&rdquo

 

But he is &ldquo optimistic about the prospects for the Singapore market in the medium term&rdquo .

 

&ldquo Our new acquisitions will augment our income streams in 2025, while the increased exposure in the living asset class will also enhance the stability of the portfolio income,&rdquo he added.

 

He also expects the potential easing of interest rates, particularly in Europe, to benefit the group.

 

CDLHT&rsquo s aggregate leverage as at Dec 31 stood at 40.7 per cent, with debt headroom of S$610 million at the 50 per cent gearing limit. Its weighted average cost of debt was 4 per cent, and its interest coverage ratio was 2.3 times as at end-December last year.

 

The group has S$231.2 million of cash and undrawn revolving credit facilities, as well as S$294.8 million in uncommitted bridge loan facilities.

The manager of CDL Hospitality Trusts (CDLHT) says plans to expand its existing 404-bed purpose-built student accommodation (PBSA) asset in Liverpool could take about three years, though discussions are still in the early stages.

 

The REIT&rsquo s maiden foray into student accommodation in December 2024 included a plot of vacant land adjacent to the Benson Yard PBSA it acquired. This plot, acquired for a purchase consideration of GBP1 ($1.68), has received planning consent for a 144-key hotel. 

 

In lieu of a hotel, however, CDLHT plans to build another PBSA block &mdash subject to planning consent &mdash which could serve to complement the existing PBSA asset.

 

Commenting on the timeline of this potential project, Vincent Yeo, CEO of M& C REIT Management, the manager of CDLHT, says: &ldquo It depends on when we actually start the project. Right now, we&rsquo re in the consultation phase.&rdquo  

 

According to Yeo, converting the vacant land &mdash &ldquo which we effectively didn&rsquo t pay anything for&rdquo &mdash into a PBSA block would yield a &ldquo similar&rdquo number of about 144 rooms.

 

Talks are still in the early stages, and Mandy Koo, head of investments and investor relations at the REIT manager, says it is &ldquo too premature to guide&rdquo for the timeline of the potential project. 

 

&ldquo Further feasibility studies will need to be conducted to determine the best use and returns,&rdquo says the REIT at the release of its results for FY2024 ended Dec 31, 2024. 

 

The REIT acquired the freehold asset last month for a total cost of GBP40.6 million, inclusive of GBP3.3 million in transaction costs. The purchase consideration of GBP37.3 million was 5.4% below the property&rsquo s valuation. 

 

Opened in February 2023, Benson Yard is &ldquo the best-in-class PBSA in Liverpool&rdquo , says Yeo in response to The Edge Singapore, with a &ldquo very high&rdquo amenity provision of 2.7 sq m per bed.

 

Benson Yard has 47 &ldquo studios&rdquo at between 23 and 29 sq m and 357 &ldquo ensuites&rdquo at between 12 and 19 sq m. The latter includes five-, seven- and eight-bed &ldquo clusters&rdquo .

 

As at Dec 31, 2024, the PBSA recorded a committed occupancy of 95.5% for the academic year running from Sept 1, 2024 to Aug 31 this year. It contributed gross revenue of $0.2 million and net property income (NPI) of $0.1 million for 2HFY2024.

 

According to the manager, leasing for the Academic Year 2025/2026 began &ldquo a few months ago&rdquo and is currently ahead of the previous academic year&rsquo s pacing. 

 

In Liverpool, there are 1.6 students per PBSA bed, says Koo. &ldquo In certain [UK] cities, there&rsquo s also council pressure to not have students in the private housing but to move them into PBSA [properties]. So, I think on various fundamentals, PBSA is actually a pretty strong, interesting story in various cities.&rdquo

 

Yeo also notes that the British pound is now at a &ldquo historically weaker level&rdquo , which is attracting more international students to pursue their studies in the UK. 

 

&ldquo The Benson Yard student accommodation acquisition continues our expanded investment strategy, to also focus on longer-stay living assets,&rdquo says Yeo. &ldquo These living assets will contribute to a more diversified and balanced income profile.&rdquo

 

Living assets 

 

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Benson Yard is one of two assets in CDLHT&rsquo s &ldquo living assets segment&rdquo , which also includes The Castings, a build-to-rent (BTR) property in Manchester CDLHT acquired via a forward-funding arrangement in August 2021. 

 

The Castings, which opened in mid-July 2024, achieved a physical occupancy of 59.1% as at Dec 31, 2024, driven by a &ldquo strong summer leasing season&rdquo , according to the REIT manager. It recorded gross revenue of $1.8 million and NPI of $0.3 million for 2HFY2024.

 

CDLHT expects leasing momentum to pick up in spring and the property is expected to stabilise &ldquo by around 3QFY2025&rdquo . According to Yeo, leases are renewed each year. 

 

Yeo attributes &ldquo part of the strength of demand&rdquo to people &ldquo struggling to make down payments for buying a home&rdquo in the UK. &ldquo Now, the problem is compounded with high interest rates [and] mortgage rates being very high&hellip They end up having to go out to rent. So, we&rsquo re still seeing very strong demand for rental housing in the UK.&rdquo

 

Residential issues in the UK are a &ldquo century-old problem&rdquo , says Koo, with &ldquo short supply&rdquo in student accommodation and BTR housing. Compared to the entire private rental market, the penetration rate of the BTR rental market is &ldquo still pretty low&rdquo , Koo adds, with more people set to move from private landlords to a &ldquo professionally-managed space&rdquo .

 

The living asset class comprises about 7% of CDLHT&rsquo s total portfolio value, which rose 4.6% y-o-y to $3.3 billion as at Dec 31, 2024. CDLHT does not have a &ldquo specific percentage&rdquo of living assets it would like to hit, says Yeo. &ldquo Everything is more on an opportunistic basis.&rdquo

 

While Yeo &ldquo likes the living asset class very much&rdquo , they are constrained by &ldquo much tighter yields&rdquo . &ldquo They tend to [have] lower yields, also because they are much more stable assets. But it&rsquo s a growing institutional asset class, so the competition for those assets is quite intense.&rdquo

 

CDLHT has looked at the PBSA sector in &ldquo various markets&rdquo , says Koo, but the pipeline of assets is &ldquo stronger&rdquo in the UK. While there are opportunities in Australia and other &ldquo key cities&rdquo in the European Union, high funding costs mean it is &ldquo difficult to make it accretive&rdquo in terms of spread, she adds.

 

FY2024 results

 

CDLHT reported on Jan 27 total distribution per stapled security (DPS) of 5.32 cents for FY2024, 6.7% lower y-o-y. DPS for the 2HFY2024 fell by 11.9% y-o-y to 2.81 cents.

 

Distributable income for the full year fell by 5.8% y-o-y to $66.9 million due to lower NPI and higher interest costs. The REIT&rsquo s funding costs rose from floating rate loans, the refinancing of its fixed rate loans, the financing of The Castings as well as asset enhancement works. 

 

The lower amount was also due to the absence of a one-off capital distribution of $0.9 million from the liquidation proceeds of an Australian subsidiary, which was recognised in the 2HFY2023.

 

Meanwhile, distributable income for 2HFY2024 fell by 10.9% y-o-y to $35.4 million. This was attributable to The Castings, as its contribution to the REIT&rsquo s total NPI was unable to cover its interest costs during the gestation period. The lower amount was also due to higher interest costs and lower NPI for the rest of the portfolio.

 

Excluding the one-off proceeds, CDLHT&rsquo s FY2024 DPS and distributable income would have declined by 5.5% and 4.6% y-o-y respectively. Similarly, 2HFY2024 DPS and distributable income would have dropped by 8.9% and 9.9% y-o-y respectively.

 

CDLHT&rsquo s gross revenue in FY2024 inched up by 1% y-o-y to $260.3 million thanks to higher revenue from its hotels in Perth, Japan, Germany and the UK. This was, however, offset by lower revenue from its Singapore hotels, Grand Millennium Auckland in New Zealand, Hotel Cerretani Firenze in Italy and its Maldives resorts.

 

Following the acquisition of a purpose-built student accommodation (PBSA) asset in Liverpool for GBP37.3 million ($63.9 million) by CDL Hospitality Trusts J85 (CDLHT), the team of analysts at DBS Group Research have highlighted the move as a positive one, keeping their &ldquo buy&rdquo call at a target price (TP) of $1.20.

 

The property provides amenities spanning over 1,092 square metres (11,754 sq ft), supporting the living preferences for modern students. 

 

They add that the deal price of GBP40.6 million translates to a price per bed of GBP92,000, which is below both the asset&rsquo s last valuation by about 5.4% and replacement cost of around 18%.

 

Additionally, the acquisition price includes a small fee of GBP1 million for land rights to an adjacent land site next to the property, which the team at DBS notes could serve as an extension to the original building to yield another 144-keys if deployed.

 

&ldquo The added option for further development will also allow CDLHT to increase longer-stay bed exposure in the future and translate to higher valuations and yields.&rdquo

 

Overall, the team sees that CLDHT has been selective in acquiring properties that offer both strong accretion and entry below replacement cost. While the Initial acquisition price translates to a yield of 5.6%, they note that it should see stabilisation past the 6% mark.  

 

With the property serving a community of some 55,000 students in Liverpool, occupancy is expected at around 95% thanks to its prime location, with further upside in rents expected from the current GBP184 fee per week in this leasing cycle.

 

The team writes: &ldquo The acquisition is expected to be distribution per unit (DPU) accretive at 1.3%, which is strong in consideration to asset&rsquo s size within the overall portfolio, which we believe should stand out to investors.&rdquo

 

&ldquo We continue to like CDLHT&rsquo s strategy to expand its longer-stay lodging exposure, which provides both stability and income visibility to its hotel-heavy portfolio.&rdquo