Friday, December 16, 2016

Recent Action - CDL Hospitality Trust

This should be my last action for the year as I tried to wrap up 2016 and preparing for the new upcoming and exciting year.

I accumulated CDL Hospitality Trust for 33,000 shares at a price of $1.31. Together with the existing I have, I now own 40,000 shares of CDLHT. This becomes immediately my top holding going into 2017.

I last added CDLHT back in October and you can see my article here.

My main thesis for hospitality reits continued to grow stronger as I see decline of revpar slowing down (revpar bottoming) despite influx of incoming supply which has been factored in, discount to historical valuations which I find attractive, and stronger tourist demand coming in from the weaker SGD , completion of terminal 4 and continued initiative from the tourism board to grow on these aspects.

Out of all the hospitality reits around, CDLHT remains my strongest pick because of the quality of the hotels, stronger pipeline, healthier balance sheet, and most resilient revpar (despite the drop) as compared to the others.



The Singapore hotels revpar is currently hovering at around $156, while during the GFC period it was at around $150. At the highest, this can go to as high as $200. I think a lot of the weaknesses and bad news have been factored in the share price and again the important thing is about not overpaying. 

Buy low. Sell high.

Buy when there is pessimism. Sell when everyone is getting onboard and crowded.

There's a few reasons why I didn't consider the other hospitality reits.

I've spoken previously quite extensively on Ascott here. Even though their service residence business model is more resilient than traditional hotel stay, I just find that the management interests' are getting ahead of the minority shareholders without really adding apple to apple value. You can read my articles above if you'd like to understand what I mean. For now, I just keep my small ascott holdings intact in my portfolio as I don't want to incur the commission fees by selling it away.

OUE Hospitality Trust is also a big no-no for me. Anything that has to do with the parents, I'd avoid generally as they tend to use it more for dumping ground purpose than anything else. Forget about their huge discount to nav. Look instead at their leases, the quality of their assets and the cap rates that they are getting from their assets. Not good enough.

The same goes for Far East Hospitality Trust. Huge discount to nav, that's good contrarian play. But they have not shown enough to convince that they are bringing any sort of added value to shareholders. Not for me too.

Both Fraser Hospitality Trust and Ascendas Hospitality Trusts are more catered towards Australian tourism play. In terms of M&A, the management has not totally convince that they are out there fighting for the best deal. It seems more towards buying first for now and the accretive part might come at a later stage. I'd give this a pending review for now but the yield has not convinced me to part with this.

The above is of course forms my own opinion and they might or might not be biased towards what I've seen and analyzed from my angle.


10 comments:

  1. This comment has been removed by the author.

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  2. Hi B,

    I love to read your detailed explanation of your shares purchased and it gives the lazy investor like myself some head up when analyzing the company that we are investing. I look into CDL Htrust and discovered that their EPS is 0.06 and their dividend per share at 0.098. Do you think the dividend payout is sustainable in the long run as their cash flow is at $55.7 million. Thank you and hope you continue the good work. Merry Christmas to you and your family.

    Regards,
    Derrick

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    Replies
    1. Hi Derrick

      Thanks for your comment.

      CDLHT is a stapled trust cum reits and they paid out dividends via their earnings cashflow so on that aspects id considered that its sustainable. Still though, should revpar or occupancy drops further, we can expect the dpu to also drop, though im putting my money that the bottom is near.

      Delete
  3. Thanks for sharing .

    I am still.considering hospitality reits but can't get around the air bnb issue which is a very strong trend.

    Then again, the hospitality reits are mainly catering to corporates so it's mitigated .

    No office or retail reits in your portfolio?

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    Replies
    1. Hi sgdividends

      Ive read an article somewhere that the airbnb is not as much a threat as is uber is to taxi.

      But you are right, they are corporate travellers and the hotels are mostly grade A so id say hospitality reits like far east hospitality trust would be more inclined to be affected than for cdlht.

      Delete
  4. Hello B,
    Thank you for the enlightening post.
    The price is indeed low when compared to historical price/book and yield.

    But I share Sgdividends's worry about AirBnB.
    I read that number of AirBnB listings in Singapore have increased from ~2k to ~6k in the last one year.
    The total number of hotel rooms in sg is about 60+k, so that's almost 10%. I am not sure what is the growth rate going forward, but the worsening rental market in Singapore may prompt more property owners to list on AirBnB, even though it is currently still in a legal gray area.

    There is also news about how AirBnB is now trying to target the corporate travelers.
    I think AirBnB is not suitable for short term trips of a few days, but it is very good for long trips that last a few months. My company sometimes have such people coming over for such length for user acceptance testing, etc, and such people who probably appreciate a room with kitchen facilities. And with the current cost cutting environment, more companies may be willing to consider such things.

    Still undecided.

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    Replies
    1. Hi Goh

      Thanks for your input. It serves a great discussion tool for it :)

      My take on the airbnb so far is still similar to uber is to comfort. These are no doubt disruptions along the way but these will never replace the traditional hotel stay which cdlht is offering premium stay to different market segment. I just think that the market segment target is different by itself. There may no doubt be some impact as you have provided in your case but i think the disruptions is a long way from happening in a big way.

      But good and fair point you bring up there, it definitely raise a good concern for thoughts. :)

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    2. Hi B
      Thanks for the really nice discussion!
      Having lost some money investing in M1, I can't help but compare the two.
      The news about 4th telco first started early 2015, and over time, M1's share price gets priced in gradually. I wonder if that would happen for CDLHT.

      I do not doubt that some people, such as high ranking executives and perhaps the well-off, will never switch to AirBnB.
      But the price sensitive/internet savvy will switch, and that would hit revenue. To protect occupancy, the room rates will need to be more competitive, which will also hit revenue (like the way our existing telcos starting reducing their prices even before the 4th telco even enters the market)

      I don't know much about airbnb and the hospitality industry in general, so I don't pretend to know at what point is the impact sufficiently priced in. Look forward to more expert views!

      I did find an article on the impact of AirBnB on hotels in Texas.
      http://cs-people.bu.edu/dproserp/papers/airbnb.pdf

      In short, there is a noticeable impact, and the impact is greater on cheaper hotels.

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  5. CDL hotel and Airbnb is in different business segment. Airbnb is targeted at budget travelers and people going for family or personal holiday. CDL hotel are for higher end travelers or business travelers who don't mind paying for comfort and quality.

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