CDL Hospitality Trusts Rights Issue

From OCBC Investment Research

 Cost of equity lowered to 7.7%
 Cum-rights FV of S$1.52
 Ex-rights FV of S$1.48

Renounceable rights issue
The managers of CDL Hospitality Trusts (CDLHT) are undertaking an
underwritten and renounceable rights issue of 199.5m new stapled
securities to raise S$255.4m, at a rights ratio of 20 Rights securities for
every 100 existing stapled securities. The issue price of S$1.280 is at a
23.8% discount to the 27 Jun closing price and 20.7% discount to the
TERP. 97.9% of the proceeds will be used to partially repay CDLHT's
existing borrowings. CDLHT’s sponsor has committed to an irrevocable
undertaking to subscribe fully for its pro rata rights entitlements,

aggregating ~37% of the Rights Issue.

Acquisition of Pullman Hotel Munich
In addition, CDLHT also announced the acquisition of Pullman Hotel
Munich and its office and retail components for €98.9m
(~S$153.8m) which will be fully funded by debt financing at a FY16 NPI
yield of 5.6%. The asset is an upper upscale hotel with a 4-star rating
with 337 keys on freehold land.

DPU accretive acquisition
The pro forma FY16 DPU accretion from the acquisition alone is ~3.8%.
Including the acquisition and rights issue, CDLHT’s FY16 DPU would
drop 5.7% from 10.00 S cents (actual) to 9.43 S cents on a pro forma
basis. Similarly, FY16 NAV would drop 3.9% from 1.55 S cents (actual)
to 1.49 S cents (pro forma). CDLHT’s gearing will be 33.6% after the
transactions. After adjusting beta to account for the lower gearing, our
cost of equity drops from 7.9% to 7.7%. As CDLHT will receive less
than full-year contributions from its Lowry Hotel and Pullman Hotel
Munich acquisitions in FY17, our FY17 DPU forecast of 9.13 S cents is
below the FY16 pro forma figure. After taking into account the
transactions, our fair value increases from S$1.51 to S$1.52. Do note
that our S$1.52 FV is cum-rights while all the other financial figures in
this report are ex-rights. Our fair value will drop to S$1.48 after the
units go ex-rights on 3 Jul 2017 (see appendix for schedule details).

Maintain HOLD with a fair value of S$1.52.

For full report (Click here)

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