CDL Hospitality Trust seeks growth in the UK as local tourism outlook dims

What should investors expect from its Cambridge City Hotel acquisition?

CDL Hospitality Trust (CDLHT) recently revealed its maiden foray into the booming UK hospitality market, in a bid to buck lacklustre hotel room demand at home.

According to CIMB, the $135.3m acquisition of Cambridge City Hotel will provide an attractive net property income (NPI) yield of 5.6%. The property's yield could also increase to 6-7% once operations stabilize following the completion on an asset enhancement initiative exercise in April this year.

Although the acquisition will raise CDLHT's net gearing to 35.8%, CIMB believes that it will aid in broadening the trust's earnings base and diversifying its portfolio.

"Post purchase, UK would account for 5.3% of NPI and 5.4% of portfolio value, with Singapore making up a smaller 61.8% of NPI and 71.1% of portfolio value,” CIMB said.

“CDLHT’s share price had fallen by c.20% over the past three months due to its recent weak 2Q15 results and muted hospitality outlook, with a large incoming hotel room inventory and slow tourist arrivals. At this point, we believe that much of the weakness has been priced in,” the report added.