Company Overview

CDL Hospitality Trusts (CDLHT) is a stapled group comprising CDL Hospitality Real Estate Investment Trust, the first hotel real estate investment trust in Singapore, and CDL Hospitality Business Trust, a business trust. As one of Asia’s leading hospitality trusts, CDLHT has assets under management of S$3.1 billion as at 30 September 2023, comprising 19 operational properties across Singapore, Australia, New Zealand, Japan, the Maldives, United Kingdom, Germany and Italy. CDLHT also has a Build-to-Rent (BTR) project, The Castings, in the U.K, which will add 352 residential apartment units to the portfolio after its practical completion, expected to be in mid-2024.

1. Describe CDLHT’s Business Segments and Revenue Streams

• CDLHT’s portfolio comprises 16 hotels in Singapore, Australia, New Zealand, Japan, the U.K., Germany and Italy; two resorts in the Maldives; a mall in Singapore; and a build-to-rent development in the U.K.

• The operating structure of its properties are: (i) external leases; (ii) management contracts or (iii) self-operated.

• About 66.3% of its total portfolio valuation is concentrated in central locations of Singapore. The Singapore portfolio also contributed approximately 62.7% of net property income (NPI) in the year to date (YTD) till September 2023.

2. How much has CDLHT’s portfolio benefitted thanks to a global recovery in tourism and rebound in business travels?

• In Singapore, CDLHT’s core market, a swift recovery in leisure travel was further boosted by the return of major events. Singapore’s robust line up of major concerts and events will further enhance the country’s appeal as a tourism destination, attracting travellers from neighbouring countries.

• On the back of the global recovery in tourism, 7 hotels in CDLHT’s portfolio recorded their highest 3Q revenue per available room (RevPAR) in 2023 – Grand Copthorne Waterfront Hotel, M Hotel, Copthorne King’s Hotel, W Singapore – Sentosa Cove (W Hotel), Hilton Cambridge City Centre, The Lowry Hotel and Hotel Cerretani Firenze.

3. What Are Some Key Highlights in CDLHT’s Recent Financial Performance?

• In the recent 3Q 2023, CDLHT achieved a strong year-on-year (yoy) improvement in operational performance
  o RevPAR growth was seen across most portfolio markets, with 7 hotels marking the highest 3Q RevPAR.
  o Overall NPI Increased by 23.3% (or S$7.4 Million) Yoy to S$39.0 Million for 3Q 2023.
  o Against 3Q 2019 (on a pro forma basis, assuming CDLHT owns W Hotel from 1 January 2019), CDLHT’s Singapore hotels’ RevPAR grew 32.6% on same store basis on an increase in average rate of 37.5%.|
  o CDLHT’s Japan hotels’ RevPAR rose 17.2% against 3Q 2019, as tourists returned to Japan in 3Q 2023.
  o Hotel Cerretani Firenze Reported a Record 3Q RevPAR, or +40.4% Yoy and +52.6% Against 3Q 2019.

4. Describe the structure of CDLHT and how it differs from a standard S-REIT.

• CDLHT is a stapled group comprising CDL Hospitality Real Estate Investment Trust (H-REIT), Singapore’s first hotel real estate investment trust and CDL Hospitality Business Trust (HBT), a business trust.

• Hospitality REITs are usually stapled to a business trust and they trade as stapled units due to regulatory reasons.

• In accordance to the CIS Code (the Property Fund Guidelines), REITs are generally expected to receive rental income that are fairly stable. In a situation when a hotel lease expires and no hotel operator is willing to underwrite a lease for the hotel but is only willing to contract based on a hotel management agreement, the business trust can then step in and act as master lessee of last resort and take on the lease and appoint a professional hotel manager to manage the hotel. HBT can also carry out activities that may be unsuitable for the REIT.

• All properties in CDLHT’s portfolio are held under H-REIT, with the exception of three properties, namely Hilton Cambridge City Centre, The Lowry Hotel and the UK residential BTR under development, which are held under HBT.

• HBT currently acts as the master lessee to six of the properties held under H-REIT, namely W Hotel, Mercure Perth, Ibis Perth, Raffles Maldives Meradhoo, Hotel MyStays Asakusabashi and Hotel MyStays Kamata. These properties are managed by third-party hotel management companies.

5. What Are Some Challenges That CDLHT’s Recently Faced?

i. Inflationary Cost Pressures: We have implemented initiatives like improving efficiency by capitalising on building automation technologies, job redesign, and leveraging technology to effect payroll cost efficiencies.

ii. Elevated Energy Prices: Initiatives to monitor and reduce energy consumption include upgrading of building management system, implementation of innovative in-room technology system and installation of solar panels.

iii. High Funding Costs Environment: Currently, around 50% of our total debt is on fixed interest rates. We are currently monitoring and will determine the appropriate levels of fixed-rate to floating-rate borrowings.

6. What are some key factors in the decisionmaking process for new property acquisitions? What are some of CDLHT’s growth strategies?

• We continue to look for opportunities that can enhance income stability, such as more fixed rent or underlying longer stay component.
• In Terms of Geographical Markets, We Are Focused in the Regions Which We Already Have a Presence.
• Micro location is also an important consideration. This is evident from our portfolio of hotels which are strategically located in or near major business districts in key cities or in prime tourist destinations:
  i. Hotel Cerretani Firenze - in the historic city centre of Florence and near Cathedral of Santa Maria del Fiore
  ii. W Hotel - a Luxury Lifestyle Brand in Front of the Marina Waterfront Living Enclave in Sentosa
  iii. The Lowry Hotel - in Close Proximity to the Heart of Manchester City Centre
  iv. Hilton Cambridge City Centre - one of the best located and largest premium hotel in Cambridge City Centre
  v. Pullman Hotel Munich - is strategically located next to the commercial district of "Parkstadt Schwabing"
  vi. Ibis Perth - is strategically located in the heart of Perth city, just a short stroll from the Swan River

7. Elaborate on the Opportunities CDLHT Sees in Its Build-to-Rent Investments.

• The BTR sector is experiencing strong structural demand growth and supply shortages which supports rental growth across major markets.

• Notably, residential rental growth in Manchester has been robust since our investment in the BTR forward funding scheme in Aug 2021.

• Given the sector’s attractiveness underscored by favourable demand and supply dynamics, we will continue to evaluate opportunities.
• Construction of The Castings Remains on Track to be Practically Completed in Mid-2024.

• Works on the building façade, interior and amenity spaces are ongoing with completion on schedule.

• Mobilisation of the Building Has Commenced to Prepare the Scheme for Lease-up.

8. What Geographical Markets Are You Expecting to Pick Up Pace (e.g. With China’s Reopening)?

• Geographical markets that had a high proportion of Chinese tourists pre-pandemic such as Singapore (19.0% of total visitor arrivals in 2019) and the Maldives (16.7% of total visitor arrivals in 2019) could see a further pick up.

• As at YTD September 2023, Singapore saw just over a million Chinese tourists in 2023, about 35.3% of the same period in 2019. In 3Q 2023, Singapore recorded 0.6 million Chinese tourists, approximately 56.2% of 3Q 2019.

• As at YTD September 2023, the Maldives received 145,986 Chinese tourists in 2023, approximately 63.4% of the same period in 2019. In 3Q 2023, the Maldives recorded 82,559 Chinese tourists, approximately 91.6% of 3Q 2019.

• Despite Chinese outbound travel picking up pace around 2Q23, difficulties in getting visas and passports remain one key bottleneck -- the recovery for Chinese outbound travellers is seen to pick up further around 3Q 2024.

9. Tell us about CDLHT’s solar panel project in its Maldives resorts and what the company aims to achieve through this project.

• Guided by our sustainability vision and mission, CDLHT continues to drive ESG best practices across the portfolio through various initiatives.

• We completed the first phase of the installation of solar panels at our resorts in the Maldives – Angsana Velavaru and Raffles Maldives Meradhoo – in March 2023 and May 2023, respectively.

• Due to the nature of the one-island-one-resort concept in the Maldives, energy is generated onsite using diesel as the primary source of fuel, which contributes to CDLHT’s greenhouse gas emissions. The solar panels currently supply between 15% to 20% of the resorts’ energy requirement and help to reduce overall diesel consumption.

10. Why Should Investors Take a Closer Look at CDLHT?

• Notwithstanding the severe impact of the pandemic, CDLHT’s portfolio has displayed resilience and continued commitment in investing into the portfolio through asset enhancements to position the hotels strongly when the recovery takes place. Our hotels have also undergone transformation during the challenging environment and emerged with improved efficiency.

• CDLHT takes a long-term view and in particular for Singapore, our core market, we continue to see very positive tourism prospects in medium to long term. The forward purchase of a turnkey lifestyle hotel, Moxy Singapore Clarke Quay will add 475 keys to the portfolio and strengthen CDLHT’s positioning in the lifestyle hotel segment.

• While the unit price of S-REITs have been under pressure due to the high interest rate environment, CDLHT’s asset values remain stable supported by improved cashflows. Notably, CDLHT’s units are trading at a yield of 6.4% as at early November 2023, based on the trailing 12-month distribution per unit (DPU) of S$0.061, with a price-to-book ratio of 0.7x based on 1H 2023 net asset value (NAV) of $1.41.

10 in 10 – 10 Questions in 10 Minutes With SGX-listed Companies

Designed to be a short read, 10 in 10 provides insights into SGX-listed companies through a series of 10 Q&As with management. Through these Q&As, management will discuss current business objectives, key revenue drivers as well as the industry landscape. Expect to find wide-ranging topics that go beyond usual company financials.

This report contains factual commentary from the company’s management and is based on publicly announced information from the company.

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