Singapore REITs Corporate Day - Maybank Research 2023-04-05: China Reopening

• We hosted the senior management of CDL Hospitality Trusts (SGX:J85) and CapitaLand China Trust (SGX:AU8U) with investors.

Rebounding consumption, Chinese visitors returning

• - Read this at SGinvestors.io -
• Both CDL Hospitality Trusts and CapitaLand China Trust are focused on asset enhancement initiatives (AEI) and portfolio repositioning. CapitaLand China Trust is recycling away from sub-scale malls while CDL Hospitality Trusts is growing its footprint in the built-to-rent sector.
• - Read this at SGinvestors.io -

CDL Hospitality Trusts (SGX:J85) – BUY, target price S$1.40

• While demand from visitors from China is not impactful yet, hotel booking visibility is picking up for May and June. Flight capacity is at 37% of pre-COVID level, will improve to 50% by 1H23 and is likely to gradually improve to ~70% by September.
• Demand from transient corporate travelers is yet to fully recover as companies are still cost-conscious, even though they are accepting higher room rates for corporate RFPs (Request for Proposals). The business travel period has shrunk to Tuesdays to Thursdays due to hybrid work arrangements. The ‘Bleisure’ (business + leisure) segment is growing in cities where there are sight-seeing options. MICE is currently a big driver of non-leisure demand in Singapore.
• Room rates in most geographies are at record highs. It is helping to tide over higher operating costs and maintain margins. There is supply pressure in the Maldives and Auckland. Otherwise, room supply is less than 5% of existing stock in other cities.
• In Singapore, there are rooms taken off for renovation (Grand Hyatt, Mandarin Oriental, Marina Bay Sands) but beyond that there are not many rooms withheld for isolation business.
• Effective funding cost for FY23 will be ~4%. Cap rates have not expanded in line with higher interest rates due to RevPAR growth, operational improvements and capital inflows into the living sector. Cap rates for built-to-rent are at 4.25%. Acquisitions have to factor in projected rent growth to be accretive.
• Maintain BUY on CDL Hospitality Trusts due to global reopening, pent-up demand of visitors from China and eventual return of corporate travelers.

CapitaLand China Trust (SGX:AU8U) – Not Rated

• Read more at SGinvestors.io.

Krishna Guha Maybank Research | https://www.maybank-ke.com.sg/ 2023-04-05 SGinvestors.io

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