More even, broad-based recovery 

■ 9M23 NPI of S$101.8m (+23% yoy) missed expectations at 65% of our FY23F, mainly due to lower-than-forecast Singapore non-room revenue. 

■ Six out of its eight markets posted higher yoy 3Q revenue per available room. 

■ Reiterate Add on CDREIT as a hospitality recovery play.

Recovery driven by room rates and return of travellers 

3Q/9M23 NPI grew by 23%/23% yoy to S$39.0m/S$101.8m, driven by yoy growth in revenue per available room (RevPAR) in six out of eight of CDREIT’s markets. Singapore hotels delivered higher 3Q23 RevPAR (+20% yoy) and NPI (+12% yoy) despite lower F1 attendance and ongoing asset enhancement at Grand Copthorne Waterfront and W hotels. 3Q RevPAR/NPI in New Zealand jumped 81%/5.2% yoy as the hotel was ramping up after the end of government block booking in Jun 22, although 9M23 NPI was lower due to six months of higher rates under the government contract in 2022. Japan’s rapid recovery saw 3Q23 RevPAR (+102% yoy) reaching 117% of 3Q19 levels. 3Q23 RevPAR in the Maldives and UK grew by 18% and 7%, respectively, while CDREIT’s Italy asset was the star performer, with 3Q RevPAR (+40% yoy) reaching 153% of 3Q19 levels. The 3Q seasonal low in Australia resulted in a 7% yoy decline in 3Q RevPAR while 3Q RevPAR in Germany was 5% lower yoy as 3Q22 was boosted by the European Championships.

Singapore room rates to moderate in FY24F; focus is on occupancy 

CDREIT has employed a yield management strategy as it emerges from the pandemic, focusing on maximising room rates instead of occupancy. While this strategy has proven successful, average room rates in Singapore were 23-28% above 2019’s in the first nine months of 2023. With some new incoming supply, management believes there could be some consolidation in room rates in FY24F. As such, it is shifting its FY24F strategy from yield management to driving RevPAR through improving occupancy. Higher electricity and manpower prices could also weigh on gross operating margins in most markets but less so in Singapore as electricity contracts for FY24F were locked in c.30% below FY23F’s.

Gearing inching up due to loans drawn but valuations likely stable 

Gearing inched up qoq from 37.9% to 38.4% due to loans drawn to fund the UK build-torent market (BTR) project (76% funded) while average cost of debt increased 10bp qoq to 4.2% in 3Q23. Management guided for FY24F cost of debt to be similar to FY23F levels as the expiry of its interest rate swaps exceeds the FY24F loan maturities. 

Reiterate Add on CDREIT as a hospitality recovery play 

We cut FY23F-25F DPU by 3.9-7.8% for lower non-room revenue for the Singapore assets, lower gross operating margins due to cost pressures and slightly higher cost of debt assumptions. Our DDM-based TP dips from S$1.55 to S$1.43. CDREIT is well positioned to capture upside from its recent asset enhancements at Grand Copthorne and the strong UK BTR market, in our view. Re-rating catalysts are accretive acquisitions/divestments. Downside risks include lower-than-forecast leisure/corporate travel demand, which could impact CDREIT’s occupancy and room rates.

ESG in a nutshell 

CDREIT scored B in its combined ESG score in 2022. It improved its Environmental score (from C+ to B) and Social (from B- to B) and maintained its Governance score (B). Five out of six of CDREIT’s Singapore hotels have obtained the Building and Construction Agency (BCA) Green Mark Gold and above. 

ADD by CGS-CIMB Research.  Share price closed at S$0.97