CDL Hospitality Trust REIT Analysis
Growing Portfolio of Hotels and Retail Malls
CDL Hospitality Trust (CDREIT) is the first and largest hotel SREIT to be listed in Singapore. It was listed in 2006 when its corporate parent Millennium & Copthorne (a subsidiary of City Developments) spun off four Singapore hotels (mainly on 75-year leasehold interest) and an adjoining retail mall to create CDREIT. Since then, CDREIT’s portfolio has grown to 17 hotels and one retail mall, through a series of acquisitions from its corporate parent and third party sellers.
International Property Portfolio – FX Risks
CDREIT’s current property portfolio comprises of hotel assets in Singapore, Australia, New Zealand, Japan, the UK, Germany and Maldives. Thus, CDREIT tends to be exposed to foreign currency risks although it manages such risks through FX hedges. While CDREIT does embark on fairly frequent asset enhancement initiatives (AEIs), we view such AEIs as more of asset refreshment exercises in order to prevent their hotel assets from becoming obsolete and uncompetitive.
Like other hotel SREITs, many of CDREIT’s hotel assets are leased to master lessees that pay a variable rent linked to the hotel’s revenue and operating profit (subject to a minimum fixed rent). Given that hotel revenue and operating profit depend on occupancy levels that change on a daily basis, thus hotel SREITs rentals tend to be more variable in nature. For example, during the 2003 SARS crisis in Singapore, many Singapore hotels suffered as occupancies fell significantly below 50%. However, hotels occupancies were also fast to recover once the health crisis was over. Investors in hotel SREITs should also bear in mind the disruption risk from the sharing economy (i.e. Airbnb) although currently Airbnb services are not legalized in Singapore.