CDL Hospitality Trust - Underlying trends remain largely the same
- FY16 DPU of 10.01 Scts (-0.5% yoy) was above our expectation, forming 108% of our full-year forecast. 4Q16 DPU of 3.11 Scts (+3.3% yoy) was at 34%.
- Excluding the one-off consumption tax, FY16 DPU would have been 9.75 Scts, down 3.1% yoy.
- Underlying trends remain largely the same: Singapore and Maldives remain challenging; Japan’s good performance is tapering; UK is affected by FX translation.
- NZ to finally enjoy robust growth with the change in master lease.
- Maintain Hold with higher DDM-based target price.
4QFY16 results summary
- 4QFY16 outperformance sprang from better-than-expected contributions from the New Zealand hotel, which benefitted with the change from a largely fixed rent structure to a more significant variable component.
- Otherwise, underlying trends remain largely the same. Distribution income was also boosted by a one-off consumption tax of S$2.5m (0.25 Scts/share) relating to the Japan hotels acquisition. Excluding this, FY16 DPU would have been 9.75 Scts (-3.1% yoy).
Fair value loss of S$21.6m for FY16
- CDREIT recorded a fair value loss of S$21.6m for FY16. The fair value loss mainly arose from its Singapore and Maldives properties but was partially offset by a fair value gain on its NZ and Australia properties.
- Additionally, there was an S$8.1m impairment charge on the PPE arising from Jumeirah Dhevanfushi.
Singapore 4Q16 RevpAR down 10.5%; FY16 -8.6%
- Against a backdrop of c.2% increase in visitor days and c.4% increase in room nights in 2016, CDREIT’s Singapore RevPAR fell 10.5% yoy in 4Q16 (the sharpest drop among the four quarters); and 8.6% yoy in FY16 to S$160. RevPAR is now around 2007-levels.
- With c.5% increase in room nights for 2017, we expect a single-digit decrease in FY17.
- We only expect to see some relief in 1H18.
The sore points: Maldives, Japan & UK
- In terms of US$, Maldives recorded RevPAR yoy declines of 14.7% and 25.1%. It Is difficult to envision a recovery in 2017.
- With new room supply, Japan’s RevPAR (¥) dropped 5% yoy for 4Q16 but rose 0.6% yoy for FY16. We expect muted RevPAR growth going forward.
- Lastly, UK’s RevPAR (£) grew 10.8% yoy for 4Q16 and 11.9% for FY16. However, FX translation resulted in lower yoy NPI contribution.
NZ to finally enjoy robust growth with the change in master lease
- With the change in lease structure, NZ is finally able to enjoy robust growth. On the back of the addition of new international air services, NZ’s RevPAR (NZ$) grew 24.9% yoy in 4Q16. Grand Millennium Auckland is enjoying occupancy in the 90s, and we expect the market there to remain tight.
- We made several earnings changes that partially offset one another, resulting in a 2.3- 3.5% increase in FY17-18F DPU.
- We also introduce our FY19F numbers. We hiked up NZ contributions on higher RevPAR and gross margin assumptions; up Claymore Connect on higher rent and margin assumptions; and higher gross margin for the UK.
- On the other hand, we cut contributions from Singapore, Maldives and Japan.
- Our DDM-TP (S$1.42) is raised as we roll forward our valuation and raise our projections.
- With no clear catalyst and limited upside, we maintain Hold on CDREIT.
- Upside/downside risks hinge largely on Singapore hospitality market.