• Stay NEUTRAL with an unchanged TP of SGD1.25, 6% upside. 1H DPU came in slightly below our and consensus’ estimates. We expect the ongoing strong recovery in the Singapore hospitality sector to continue well into 2H and 2024 backed by a strong event pipeline and leisure demand. However we forecast the overseas segment performance to remain mixed coupled with a sharp impact from rising interest costs and FX volatility. We expect the stock to trade rangebound with key catalyst an earlier than expected rate peak and an economic recession as the key risk.

• 1H DPS up 23% YoY; 2H to see a stronger recovery in Singapore amidst a continued surge in pent-up demand, with CDL Hospitality Trusts guiding that room rates across its hotels are likely to cross all-time highs last seen in 2011 and 2012. This comes after a strong 1H driven by Singapore with 43% YoY net property income (NPI) growth resulting from rising RevPAR (19% higher vs the level in 1H 2019). Visitor arrivals in 1H in Singapore have been rising to 6.3m, c.67% of the level in 2019, with total visitor days of 24.6m - at 77% of the level in 2019 - indicating longer stays. The outlook for 2H remains healthy with strong Formula 1 attendance anticipated but we expect Chinese visitor recovery to remain patchy.

• A mixed bag from overseas markets: Italy, Germany, Japan, and Australia saw the biggest NPI improvements in 1H aided by a strong surge in inbound travel and events. 2H outlook for these markets remains rosy. Hotels in the UK saw a modest (+7%) NPI growth in 1H which is likely to soften in 2H. The performance in Maldives was impacted by an increase in supply and reopening of alternative destinations (ex. Seychelles, Mauritius etc.), resulting in 29% YoY lower NPI. Similarly the performance in New Zealand was impacted by weather events and higher operational costs resulting in a 48% YoY NPI decline. We expect the above two markets to remain as a drag in 2H.

• Interest cost pressures to persist and weigh on bottom-line. Only c.48% of CDLHT’s debt is fixed. YTD average interest cost surged 60bps to 4.1%. While there is a GBP 86m loan due in August, this is currently on floating rates and should not result in a cost increase upon refinancing. However interest costs are expected to rise further in 2024 when c.32% of its loans are due with the majority of them currently on fixed rates.

• Gearing is comfortable at 37.9% and we expect the overall valuation to remain largely stable with a slight upside seen for its Singapore hotels. Management remains on the lookout for acquisitions with opportunities mostly seen in Europe.

• We have tweaked our FY23F-24F DPU by -1%/+2%. With an ESG score of 3.1 (out of 4.0) which is one notch above our country median score, we applied a 2% ESG premium to our DDM-derived TP.

Source: RHB Research - 31 Jul 2023