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Friday, October 28, 2016

Recent Action - CDL Hospitality Trust

I've had a rather busy week so I didn't update much about the transactions which I've made for this week. I made quite a few of them and I will update them in my next portfolio updates.

I added 7,000 shares of CDL Hospitality Trust at $1.31 after the company announces its third quarter results on Friday morning.

This is something which I've kept in my watchlist for quite some time and failed to get them earlier in the year. Still, I am glad to be able to add them for what I thought to be at a decent valuation.


Since the company has announced its third quarter results, I'd also go through them a bit in this.

The portfolio is highly concentrated in the Singapore market, even though they had ventured out in recent years to various areas such as Maldives, UK and AU in order to diversify their holdings.

It's a bad thing if you have a hospitality assets in Singapore market right now.

Unlike during recessionary periods in 2008 and 2011, where demand for occupancy and hotels was affected, you can see that demand remains strong with the occupancy rate holding between 86% to 90%. With the Singapore dollar getting weaker and the government initiatives towards building a more vibrant tourism industry, this will only get better and I suspect demand will hold up.




The problem the Singapore market is facing right now is on the supply side.

The competitive environment with so many hotels being set up until 2018 will outweigh the demand in the near term. Having said that, I'm secretly hoping that in the mid to longer term the demand will work out well to meet these supply. This is one of the reason I'm putting this under my longer term investment category.



On the overseas market, the UK, AU and Japan portfolio is doing well so I think this is a good diversification towards a purely Singapore concentrated portfolio. It also appears that this is the direction the sponsor is going to take over the next few years based on the strategy they laid out.

The Maldives market is slowing but there's a minimum guaranteed fee to mitigate the drop in income.


Comparison against other hospitality reits

I have to say that among the other hospitality reits listed here, my preference is towards CDLHT than others such as Ascott, Far East Hospitality Trust and OUE Hospitality Trust. I've never delved much into Fraser Hospitality Trust.

I owned a bit of Ascott and I already blogged previously about its shortcomings. Still, I thought it's a good yield play overall if you are not expecting much.

Far East Hospitality Trust and OUE Hospitality Trust have a poor sponsor pipeline and management in my opinion and they've done nothing so far to impress me much yet. Their valuation could appear as "cheap" to the outside eye but do look out for specific lease, agreement and structure. In my opinion, they are Reits that are built more for dumping ground than to increase shareholders' value.


Summary

If you read my previous post on the X + Y + Z Strategy, I would attribute this to a "7-2+5", with +7% being my estimate yield, -2 being my potential capital loss in the short term, and +5% being a valuation which I am hoping it will pay off over the longer run. The danger with this strategy is if I get that last part wrong then I am officially catching a falling knife, but I believe it will not.

CDLHT also has a good bluechip sponsor in CDL and Millenium Copthorne and pipeline in my opinion which I think weigh a huge scoring in my comparison.


15 comments:

  1. This is on my watchlist as well, but I've yet to pull to trigger. Still deciding between this + others counters. Dilemma...

    ReplyDelete
    Replies
    1. Hi Unintelligent Nerd

      Care to share what's the other counters you are thinking about?

      Delete
    2. Mainly non-REITs. My portfolio is flooded with REITs and I'm trying to de-REIT it.

      I'm thinking of Kingsmen, ST Engineering, HLF. Still waiting for a better price though.

      Delete
  2. Hi B ,
    Thanks for the detail analysis , yah ,, among all the hospitality Reit , CDL-H T is having better quality asset class , I have divested OUE-HT recently as I am quite worry about their retail part at Orchard ( Mandarin Gallery ),,if you ever went there ... :(
    Cheers !

    ReplyDelete
    Replies
    1. Hi STE

      Ah yes, Mandarin Gallery is indeed a worry though they do mention they have secured two anchor tenants for longer lease so I think that should help.

      I'm surprised though you divested OUEHT. I was thinking you got it cheap and going more passive with it.

      Delete
    2. Hi B,
      Yah,, I made some money on this counter and should be happy to collect the dividend with yield of more than 7+% ,,, but my concern is more on their retail and recent acquisitions of Changi Crown Plaza ,,,, anyway ,, I'm still more on passive income ,,, I " change horse " to Fraser Hospitality ,,, and increase some more on CDL -H ,,, which their asset quality looks much better ,, :)
      Cheers !

      Delete
  3. Thanks for sharing your detailed analysis. I always like to read what other people are looking at and investing in. Thanks for sharing!!!

    ReplyDelete
    Replies
    1. Hi MSM

      Thanks for leaving your comment.

      Delete
  4. Thanks for sharing! Have u taken a look at Ascendas Hospitality Trust before? I find its portfolio to be quite well diversified and could be of interest to you.

    ReplyDelete
    Replies
    1. Hi Go Huat

      Yes, I've used to own AHT in the past but their management has not done anything thus far to impress me yet.

      Delete
  5. Hi B,

    Thanks for sharing.

    Can you share link to your old post about Ascott.... I don't see any search function to look it. Or I am missing something.

    Appreciate guidance here.

    Thanks,
    JC

    ReplyDelete
    Replies
    1. Hi JC

      Here is the link I've written in the past on Ascott, which I think still applies today.

      http://foreverfinancialfreedom.blogspot.in/2015/01/my-bold-crystal-ball-prediction-for.html

      Delete
    2. Thanks B and yes still relevant.

      Their current portfolio after including recent Ascott Orchard acquisition is S$5.3B and their target eventual portfolio is S$6B. With current 41% gearing, rights issue only way for acquisition funds unless they sell less contributing assets.

      JC

      Delete
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  7. I have to agree with you that OUE hospitality trust and Far East Hospitality trust have done nothing to impress investors. Share price have been down trend for so Long and DPU is not fantastic.

    ReplyDelete

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