CDL Hospitality Trusts - DBS Research 2016-01-06: Cheap as chips

CDL HOSPITALITY TRUSTS J85.SI

CDL Hospitality Trusts - Cheap as chips

We maintain our BUY call with a revised TP of S$1.54.
While CDREIT faces several challenges in 2016 including:
1. excess new room supply in Singapore and
2. potential impact on its Maldives operations due to the recent imposition of a state of emergency,
we believe this has largely been priced in.
The implied price per key for CDREIT’s Singapore portfolio stands at c.S$440k which is below replacement cost of c.S$700k, and recent market transactions at above S$650k.

CDREIT’s implied price per key of S$455k is below that of other hospitality REITs (S$650k-1m). Thus, CDREIT offers the cheapest exposure to the eventual upturn in the Singapore hospitality market.
With no new land released for new hotels over the past two years, supply pressures should ease from 2017 onwards.

We expect additional upside to CDREIT’s earnings as it optimises its portfolio.
At the end FY16, the initial 10-year lease at Rendezvous Grand Hotel Auckland (c.7% of 9M15 NPI) ends, which presents an opportunity to appoint another operator or renegotiate better lease terms. This is on top AEI’s being undertaken at Grand Copthorne Waterfront Hotel and M Hotel in Singapore.

Given weaker than expected 3Q15 performance, concentration of new supply in Singapore near CDREIT’s properties in 2016 and potential impact on its Maldives operations due to the recent declaration of a state of emergency, we cut our FY15- 17F DPU by 11-15% and lowered our DCF based TP to S$1.54 from S$1.65.

The key risk to our view is a weaker than expected demand-supply outlook for the Singapore hospitality market, resulting in a lower RevPAR performance compared to our estimates. This may be due to a decline in tourist arrivals into Singapore.

Mervin Song CFA DBS Vickers | Derek Tan DBS Vickers | http://www.dbsvickers.com/ 2016-01-06

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.54 Down 1.65