Should You Invest In CDL Hospitality Trust [Fundamental Analysis]

In this article, we'll be conducting a fundamental analysis of CDL Hospitality Trust and its suitability to achieve the following investment objective: To deliver a stable dividend yield of 5% to 6% per year while having high capital preservation ability.

Information Is Accurate Up To Feb 2024

Business Description

CDL Hospitality Trust is a hospitality REIT that was listed in 2006 and owns 20 hotels worldwide.

What I Like About CDL Hospitality Trust:

• The management has done a good job of maintaining its gearing ratio within the healthy range (<40%)
  

What I Do Not Like About CDL Hospitality Trust:

• A large share of the distribution per unit is supported by non-operational items such as management fees paid in units. This makes valuation difficult as the intrinsic value based on operational performance alone is quite different from the intrinsic value derived from the reported performances. (Figure 7)
  

• Tenancy contracts are shifting towards having more managed properties as opposed to properties with leases. On the downside, this increases the portfolio’s sensitivity to the cyclicality of economic cycles as the % of gross revenue that is fixed decreases accordingly. On the upside, if the managed properties perform well, we can expect to receive a higher return from the variable rental income. (Figure 11)
  

• The management’s ability or the current capital management strategy of keeping the percentage of fixed borrowings to be around 50-60% is questionable as they failed to take advantage of the low-interest period during the 2020s and are now suffering from the impact of a high-interest rate environment.
  

Updates From Recent Performance (FY 2023)

General Comments:

• -

Positive Headwinds:

• Similar to all hospitality REITs, the recovery in occupancy rate should provide a potential upside in top and bottom-line performances without needing to increase room capacity.

Negative Headwinds:

• A good chunk of the borrowings is due for re-financing this year (30.1%) of which the average cost of borrowing is highly likely going to float around the current levels or at worse increase slightly as it is unlikely that the interest rates will decrease that fast that soon. (Figure 6)

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Daniel is a Licensed Independent Financial Consultant with MAS and a Certified Financial Planner (CFP®).

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Disclaimer:

This article is meant to be the opinion of the author

This article is for information purposes only

This article should not be seen as financial advice

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