CFA Society Singapore
SINGAPORE (Nov 19): CGS-CIMB Securities is maintaining CDL Hospitality Trusts (CDLHT) at “add” given the acquisition of Hotel Cerretani Florence will be DPU-accretive and provide the REIT exposure to the historic city of Florence, which ranks among Italy’s most visited cities.
In a Monday report, analyst Eing Kar Mei says the city also has a vibrant exhibition and fair calendar, which includes the popular ‘Pitti Immagine Uomo’, a biannual international fashion exhibition that attracted more than 30,000 visitors in June.
On the supply side, Eing says there is limited future room stock due to high barriers to entry stemming from new urban planning regulations prohibiting new hotel developments in the city centre.
Last Friday, CDLHT announced the acquisition of a 95% stake in Hotel Cerretani Florence for EUR 40.6 million ($63.6 million).
The hotel is a four-star hotel under the “MGallery by Sofitel” flag with 86 rooms and underwent an extensive phased refurbishment in 2016 for EUR 43.8 million ($68.6 million).
Post acquisition, Italy is expected to account for 1.5% of CDLHT’s NPI. The deal will be funded through internal sources or offshore debt or a combination of both.
Assuming the hotel is fully debt-funded, the acquisition will increase the trust’s gearing from 33.8% to 35%.
The acquisition is expected to be DPU-accretive as the yield of 4.6% is higher than the assumed funding cost of 0.7%.
The property will be leased and operated by the existing lessee, which is affiliated with the existing 5% shareholder, which is part of the Event Hotels Group.
It will also continue to be marketed under the “MGallery by Sofitel” flag pursuant to an existing franchise agreement with AccorHotels. The lease on the property is about 20 years and the lease structure is based on 93% of the net operating profit of the property, subject to a base rent of EUR 1.3 million.
Eing understands RevPAR for the property is EUR 150 while average occupancy rate is more than 75%.
While the acquisition is expected to be DPU-accretive, CGS-CIMB Securities is reducing its FY19-20F EPS by 4.2-4.3% as the acquisition size and yield are lower than expected.
“Maintain Add for its strong DPU growth in FY19F, driven by the reopening of its Maldives Resort, completion of AEI in Orchard Hotel, acquisition of Hotel Cerretani Florence and a recovery in the hotel industry in Singapore,” says Eing.
Year to date, units in CDLHT are down 12.4% to $1.48 giving a FY19F yield of 6.3%.