CDL Hospitality's Asset Swap Will Increase The DPU By 2.7%



CDL Hospitality Trusts (SGX: J85) proposes portfolio restructuring with three major transactions:

  1. The divestment of Novotel Clarke Quay

  2. Purchase a new hotel under the Marriot-run Moxy brand

  3. Purchase of W Sentosa from its sponsor



The divestment of Novotel Clarke Quay


The asset will be sold to a 50:50 City Dev-Capitaland joint venture at $375.9m, which allows the REIT to make a one-off capital gain of $39.8m. The divestment will enable CDL Hospitality Trusts to lock in capital gains on an ageing asset, which requires huge capital expenditure to enhance the property moving forward.



Purchase a new hotel under the Marriot-run Moxy brand


The REIT will acquire the new hotel at a price of either the lower of $475m or 110% of development costs. The asset is expected to bring in 5.6% net property income. Upon the completion of the purchase by 2025, the hotel is set to receive a fresh 99-year lease.


With a low gearing of 35.3%, the REIT still has debt headroom of $512m. The new hotel purchase will be fully funded by debt.



Purchase of W Sentosa from its sponsor


CDL Hospitality Trusts is also buying the W Hotel in Sentosa for $324m from its sponsor. At the purchase price, the property will only fetch 3.1% net property income. However, this will enable the REIT to gain exposure in the Sentosa market, and the management expects a 0.9% DPU accreditive from the hotel.


The acquisition will be funded by both the proceeds of Novotel Clarke Quay divestment, as well as debt.



Summary


Combining the three deals, it will improve the DPU by 2.7%. The deals will be subjected to shareholders' approval at an EGM, tentatively scheduled in Jan 2020. If the deals are approved, we would expect one-off capital distribution in the short-term, but potentially lower DPU in the medium-term. From the long-term perspective, this would be a good move for the trust to restructure its portfolio to remain relevant in the vibrant hospitality market.



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