RHB Research upgraded its call on CDL Hospitality Trusts : J85 0% (CDLHT) to “buy” from “neutral” with an unchanged target price of S$1.25 after stapled securities of the real estate investment trust (Reit) fell 12 per cent over the last month.

Analyst Vijay Natarajan said the decline in CDLHT – which is a stapled group comprising CDL Hospitality Reit and CDL Hospitality Business Trust – came amid a broader sell-down in the hospitality sector due to concerns about higher interest rates.

“We believe the weakness presents a buying opportunity for investors looking to re-enter the Singapore hospitality sector, with Chinese visitor arrivals showing signs of a rebound,” said the analyst on Tuesday (Sep 5).

While Natarajan acknowledged that the group is “susceptible to high interest rates” due to its low fixed-debt position, he said current levels of the stapled securities have priced this risk in as the stapled group currently trades at an estimated 30 per cent discount to book value.

The analyst said that the stapled group is also “poised to ride the (tourism) recovery” due to its “high quality portfolio of upscale hotels” in Singapore, which he estimated to contribute to about 62 per cent of total net property income.

This was in light of the “rosier outlook” for the hospitality sector with the return of Chinese tourists.

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Natarajan added that CDLHT’s gearing position is “comfortable” at 37.9 per cent and that the brokerage did not see an “imminent need for equity fundraising”.

“Overall, we expect a slight increase in its Singapore hotel portfolio value upon the year-end revaluation offsetting the foreign exchange impact,” he said.

On the stapled group’s commitment to forward purchase the upcoming Moxy hotel in Singapore, Natarajan said the hotel – which is expected to be completed by 2025 – “will be a good addition amid scarce market opportunities to acquire locally”.

The analyst also revised the distribution per unit for the Reit by -4 per cent to 0 per cent for FY2023 to FY2025, after fine-tuning the revenue per available room and interest cost assumptions.

On CDLHTs’ overseas portfolio, Natarajan said that the stapled group’s European portfolio continues to do well with a positive outlook for its hotels in the United Kingdom, Germany and Italy.

However, he expected the performances of the group’s segments in the Maldives and New Zealand to remain weak on the back of increased supply as well as cost pressures.

Stapled securities of CDLHT were trading 2.91 per cent or S$0.03 higher at S$1.06 as at 1.42 pm on Wednesday.