Better Buy: CapitaLand Ascott Trust Vs CDL Hospitality Trusts

It’s been an exciting time for hospitality trusts as the economic recovery takes hold and air travel restarts with a bang.

Late last year, we reviewed the hospitality trust sector and identified several catalysts that will enable it to continue to perform well.

If you’re an investor looking for a suitable REIT sub-class to invest in, hospitality may just be the way to go.

There are, however, several such trusts listed in the market.

We decided to compare the two largest hospitality trusts by market capitalisation, namely CapitaLand Ascott Trust (SGX: HMN), or CLAS, and CDL Hospitality Trusts (SGX: J85), or CDLHT.

Portfolio composition

First, we looked at the portfolio composition for each trust.

CLAS had a total of 95 properties with more than 17,000 units, vastly outnumbering the 19 properties and 4,800+ rooms that CDLHT has in its portfolio.

Also, CLAS’ properties are spread out across 15 countries, nearly double the eight countries where CDLHT had properties.

Assets under management (AUM) for CLAS were also almost triple that of CDLHT.

A more diversified portfolio is a boon for a REIT or hospitality trust as it buffers it against any particular property or country not performing well.

Winner: CLAS

Financials

Moving on to the financial numbers, we used the first half of fiscal 2022 (1H2022) as a basis for comparison as the two trusts’ third quarter business update did not contain sufficient financial numbers.

Both trusts reported a surge in gross revenue as border reopenings and the influx of tourists helped to bring in higher rental income.

However, CDHLT saw a much sharper surge of 68.4% year on year in distributable income compared to CLAS’ 20.2%.

For distribution per stapled security (DPSS), CDLHT’s 67.2% year on year rise handily beat CLAS’ more pedestrian 13.7% year on year increase.

Winner: CDLHT

Debt metrics

This next section compares the debt metrics for each hospitality trust and is an important area to look at in light of rising interest rates.

CLAS has a lower gearing ratio of 35.8% as of 30 September 2022 and has S$1.2 billion of available funds to tap on for suitable accretive acquisitions.

In addition, CLAS also boasts a much lower weighted average cost of debt compared with CDLHT, at 1.7% versus 2.5%.

CLAS’ interest coverage ratio is slightly higher than CDLHT’s at 4.3 times, and the trust has 75% of its loans on fixed rates, higher than CDLHT’s 64.4%.

These numbers stand CLAS in good stead to continue its acquisition and redevelopment activities to boost its DPSS.

Winner: CLAS

Operating metrics

Heading over to operating metrics, CLAS saw its revenue per available unit (RevPAU) surge 88% year on year with an occupancy rate exceeding 70%.

However, CDLHT has pulled off an even better performance with a near-162% year on year surge in revenue per available room (RevPAR) along with 88.1% occupancy.

Winner: CDLHT

Distribution yield

Finally, we look at each trust’s distribution yield, an important metric for income-seeking investors who are looking for a good source of passive income.

In this respect, CLAS takes the lead with a 4.5% forward distribution yield based on its annualised DPSS.

Winner: CLAS

Sponsors and acquisition track record

Aside from the numerical metrics listed above, we should also compare each trust’s sponsor and its acquisition track record to get a better understanding of its attractiveness.

CLAS has a strong, blue-chip sponsor in property giant CapitaLand Investment Limited (SGX: 9CI), CLI.

Likewise, CDLHT also has a blue-chip sponsor in the real estate conglomerate City Developments Limited (SGX: C09) or CDL.

The main difference, however, is that CLI also has five other listed REITs under its belt, being CapitaLand Integrated Commercial Trust (SGX: C38U), CapitaLand India Trust (SGX: CY6U), CapitaLand Ascendas REIT (SGX: A17U), CapitaLand China Trust (SGX: AU8U), and CapitaLand Malaysia Trust (KLSE: 5180).

This fact implies that CLI has significantly more experience than CDL in managing REITs and business trusts.

Looking at acquisitions, CLAS had just completed the purchase of S$318.3 million worth of assets in five countries to boost its portfolio.

The business trust is also planning the redevelopment of Liang Court Singapore and is developing a 679-bed student accommodation asset in the US.

CDLHT has also been fairly active with acquisitions.

In August 2021, the trust made its maiden foray into the build-to-rent sector in the UK with a land purchase and development funding agreement worth S$136 million.

And in February last year, CDLHT acquired Hotel Brooklyn in Manchester in the UK.

Get Smart: A tough decision to make

It’s a tough decision to decide between CLAS and CDLHT as each has its own merits.

REIT investors need to determine which of the above characteristics stands out more for them, or if they so choose, they can also buy units of both hospitality trusts.

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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.

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