Brokers' take: CGS-CIMB upgrades CDLHT to 'add', sees faster RevPAR recovery

CGS-CIMB has upgraded CDL Hospitality Trusts (CDLHT) to "add" from "hold" while raising its target price to S$1.43 from S$1.24 previously.

This comes from the brokerage's expectations that the trusts' revenue per available room (RevPAR) will recover faster in FY2023, specifically in European and Australian markets which are predicted to benefit from strong inoculation rates.

To reflect this, the brokerage has cut FY2021-2022 distribution per unit (DPU) estimates but raised its FY2023 forward DPU. It also assumes a higher income distribution for FY2021, and raised its terminal growth assumption as it expects a faster earnings recovery for CDLHT.

In a Thursday report, CGS-CIMB noted that some 16 per cent of CDLHT's assets under management (AUM) is in Europe, which it believes has a relatively stronger domestic market.

Another 3 per cent of AUM comes from properties in Australia, which the brokerage noted to have a low infection rate and could potentially benefit from the return of tourists post-Covid-19.

That being said, a large 66 per cent comes from Singapore, which was assessed to have low domestic demand. However, CGS-CIMB highlights that CDLHT's acquisition of W Hotel at Sentosa in the middle of last year has helped to boost its overall Singapore RevPAR, which increased by 19 per cent in Q4 2020.

It is also optimistic on CDLHT for its strong balance sheet. The trust's S$689 million debt capacity would be sufficient to support its portfolio expansion plans, in the brokerage's view.

Meanwhile, CDLHT's Singapore and New Zealand units are expected to be supported by isolation businesses for the most part of FY2021.

Although the trusts' master lease with Australia hotels is due to expire in April 2021, the brokerage says this is likely to be converted into variable rent while a restructuring of its rental agreement with the lessee of its German hotel is ongoing.

"Fortunately, both Australia and Europe may see a quicker RevPAR recovery given the stronger domestic market and relatively high exposure to arrivals from countries which could inoculate 75 per cent of their population in 1.5 years," said CGS-CIMB.

CDLHT last traded flat at S$1.24 as at 3.27pm.