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Analysts Breakdown: CDLHT’s Foray Into Maldives
Tradeable | 09 January 2013
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By: Simeon Ang
Articles (125) Profile

Seeking to tap into growing clout of Asian travellers, CDL Hospitality Trusts (CDLHT) penned a sale and leaseback agreement with Banyan Tree Holdings. The agreement entails the acquisition of The Angsana Velavaru resort in the Maldives for US$71 million ($86.8 million). Besides being CDLHT’s first resort acquisition, it will also mark the trust’s maiden foray into the Maldives.

Comprising of 79 beachfront villas and 34 water villas, The Angsana Velavaru could spell a new revenue stream for CDLHT. Here are some excerpts of what various analysts had to say and what they would mean to the retail investor.

At the get-go, Ong Kian Lin of Maybank sounds the call for caution,

“We are mildly positive on this acquisition. Nonetheless, with more hospitality trusts onboard (Ascendas and Far East Hospitality Trusts) and more hotel rooms coming online, we would advise investors to stay cautious.”

This comes as the hospitality market in Singapore is expected to see a dip despite glowing tourism figures. A possible dip could be the result of a global economy that faces another tumultuous year with several questions unanswered. The Eurozone debt crisis, the US debt ceiling crisis, a Japanese recession and a China with lower than expected growth rates could all bring much foreboding to the world.

Ong’s call: HOLD with target price of $1.98

But why the focus back into Singapore when development is overseas? As Tan Siew Ling and Donald Chua of CIMB note that,

“This deal, while small, would dilute revenue and asset value contributions from Singapore to 75 percent (from 80 percent) and 79 percent (from 83 percent respectively).”

75 percent and 79 percent are still relatively big figures. Any dip in tourism figures and spending in SIngapore could spell trouble for the trust. On the flip side though, this could be the first step in CDLHT’s efforts to diversify its revenue streams from Singapore.

Despite this, the acquisition overseas is deemed to be yield-accretive (adds to overall profit). A possible reason why the yield is relatively appealing is pointed out by Tan and Chua,

“…compensatory for a shorter remaining leasehold period of 35 years for the property, higher country risks, and the resort business’ more volatile nature.”

Tan and Chua’s call: NEUTRAL with target price of $2.15

Shifting our focus back to The Maldives, Sarah Ong of OCBC Investment Research points to the composition of tourist arrivals to the island group,

“Chinese nationals accounted for a quarter of visitor arrivals… up 15 percent Y-O-Y (year on year).”

Going further, Sarah expands on a possible caveat in the Eurozone debt crisis,

“The future recovery of the European market will be an additional positive.”

This emphasis on tourism arrivals has its roots partially in the fact that the…

“Maldives is one of the highest RevPAR (revenue per available room) markets in the world; Angsana Velavaru’s 9M12 RevPAR was US$279.”

Hence, should tourism figures improve, surely then, CDLHT’s performance in the Maldives will follow.

Sarah’s call: HOLD with target price of $1.93

In addition, Travis Seah of Phillip Capital points to a further possible upside,

“… the allowable built-up area has been increased from 20 percent to 30 percent, which further offers potential for asset development and enhancement.”

With this change in a recent government ruling, an asset enhancement initiative for Angsana Velavaru could further enhance its revenue contributions to CDLHT’s overall financial performance.

Travis’s call: NEUTRAL with target price of $2.06

In totality, this acquisition – two firsts for CDLHT – could be seen as the beginning of an acquisition spree that could fuel CDLHT’s future performance. Notwithstanding this probability, the commencement of a working relationship with Banyan Tree Holdings could also provide further opportunities for CDLHT in its pursuit to bolster its resort portfolio.

2013 could indeed be an exciting year for CDLHT.

Editor’s note:
Have any thoughts/comments or feedback regarding this article? Reach out to me on my twitter account, @Tradeable. I will also discuss and tweet about various other investment and economic related news in Singapore and beyond, there.

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Simeon, an LSE graduate, is currently the editor of Aspire. He specialises on topics surrounding trading psychology, politics and macroeconomics.

Please click here for more information about this author.

CDL Hospitality Trusts  1.620 -0.010 -0.61%   
Business: A stapled group comprising CDL Hospitality REIT and CDL Hospitality Business Trust.

Insight: Apr-19, 1Q19 gross revenue and NPI dropped 10.6% a... Read More
Banyan Tree Hldgs  0.465 -0.010 -2.11%   
Business: Operator in the boutique resort, residences & spa industry. [FY18 Turnover] Hotel investments (58.5%), property sales (23.4%), fee-based segment (18.1%).

Insight: Feb-19, FY18 revenue rose 4% to $329m, boosted by ... Read More

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