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Despite Better Results, A Double Whammy Is In Store For CDLHT
Tradeable, Tradeable Ideas | 30 April 2014
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By: Raymond Leung
Articles (142) Profile
  1. CDLHT releasd 1Q14 results that were above expectations even though it had its Claymore Link property undergo AEI.
  2. CDLHT’s debt profile is a cause for concern as the bulk of its debts will expire in 2015.
  3. A significant increase in the supply of hotel rooms could affect occupancy rates at its hotels as its hotels lack a substantial competitive advantage.

Last Friday, CDL Hospitality Trust (CDLHT) released its 1Q14 results which exceeded expectations. Net Property Income increased by 4.1 percent to $36.7 million while DPU was up by 2.3 percent to $0.0306. The better results were attributed by higher contributions from its Singapore hotels and its Maldives resorts. (Visit Maldives slogan: The Sunny Side Of Life)

Source: Net Property Income, 1Q14, CDLHT

Market expectations had been for CDLHT to record a lower DPU due mainly to the lack of contributions from its Claymore Link (formerly Orchard Hotel Shopping Arcade) property. The property is currently undergoing an Asset Enhancement Initiative (AEI) and is expected to be completed by 4Q14.

Rental contributions from the Australian properties were weaker this quarter due to a weaker Australian Dollar (AUD). The weakening AUD wrote off any revenue improvements as contributions fell from $6.4 million to $5 million.

The debt ratio of CDLHT remains healthy as it stands at 29.9 percent with a debt value of $694 million. However, we remain concerned about the capital management of the trust as we continue to reiterate our concerns about an interest rate hike to REITs.

CDLHT will be adversely affected as 43 percent of its debts are based on floating rates and the main bulk of its debts will expire on 2015. It will coincide with the estimated date of an increase in interest rates by the US Federal Reserve.

Source: Interest Rate Profile, 1Q14 Presentation, CDLHT

Source: Debt Maturity Profile, 1Q14 Presentation, CDLHT

The outlook of the trust remains murky as the main bulk of its property is located in Singapore (Singapore: 77.1 percent, Australia: 10.5 percent, New Zealand: 4.5 percent & The Maldives: 7.9 percent).

This is due to the fact that there will be a significant increase in supply of hotel rooms in Singapore in the next three years. It is expected to affect the occupancy rate of the hotels under the trust as they lack substantial competitive advantage against other hotels.

Source: Singapore Hotel Room Supply, 1Q14 Presentation, CDLHT

Trading at the yield of 6.84 percent, we find that CDLHT is reasonably priced with most upside factored in. In view of the murky outlook and lack of catalyst for the trust in the foreseeable future, investors may consider switching to other REITs like OUEHT.

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Trained in fund management, Raymond is familiar with shares and various investment vehicles.

Please click here for more information about this author.

CDL Hospitality Trusts  1.630 -0.020 -1.21%   
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

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