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CAIG Update

CAIG Update

CAIG now has two operational hotels, including the Marriott Docklands and Peppers Docklands. Given trading to date across the two operational hotels have outperformed their budgets, the model has not been updated since the initial issuance and remains a conservative forecast.

We expect occupancy rates to continue to ramp up across the Marriott Docklands and Peppers Docklands over 2022 (and beyond), which will give confidence to bondholders around forecasted cashflow and EBITDA/Interest cover metrics. For context, EBITDA/Interest cover metrics are expected to be around the 3-5x mark through-the-cycle.

Marriott Docklands occupancy rates for December 2021 (the first full trading month) was c.40% with an average room rate of AUD290 (versus the expected average rate of AUD177). Occupancy rates would have been well above 50% if not for last minute cancellations due to the Omicron wave in the last week of December.

The hotel turned over revenue of AUD660k (versus Marriott’s own expected budget of AUD572k) and a gross operating profit of c.AUD250k versus Marriott’s expected budget of AUD94k. Margins were higher due to good cost control and it is uncommon for a brand new hotel to turn a profit in its first month of trading as there is a 6-12 month trade-up period.

Marriott Docklands was the best performing asset of all the Marriott managed hotels in Victoria. Peppers Docklands occupancy data has not yet been received, though given the hotel is leased, CAIG receives a fixed base rent, so occupancy rates are less relevant here. The AC Hotel is expected to open in late March 2022 and will be the third operational hotel. We present the key financial metrics below, which will not have changed since our last update.

The EBITDA/Interest cover needs to be put into context. The nature of the development segments are such that costs and debts are incurred without any income recognition. Thus, it can be more appropriate to look at a through-the-cycle EBITDA/Interest cover. We note that development profits on the Docklands residences and Normanby residences are built into the model over FY22 and that the Revitalising Central Dandenong (RCD) and South West Towers development profits occur in FY25.

Chart 1. CAIG Valuations

Source: CAIG Financial Model

Table 1. Financial Metrics

Source: IAM Capital Markets

For completeness, there was an updated valuation received on the Peppers Docklands hotel, which was the second condition subsequent in the information memorandum (IM). The independent valuation (using capitalisation of net income) valued the property (inclusive of residences) at AUD40.4m (from AUD39.2m). This resulted in a small decline in the gross loan to value ratio of c.20bps to 61.9% − giving bondholders more equity buffer to deal with if asset valuations were to fall.

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