CDL Hospitality Trust - UOB Kay Hian 2017-01-27: 4Q16 Results Of CDREIT Above Expectations

CDL HOSPITALITY TRUSTS J85.SI

REITs − Singapore - 4Q16 Results Of CDREIT Above Expectations

CDREIT’s results were above expectations due to better-than-expected performances in New Zealand and Japan. However, domestic RevPAR saw continued weakness on waning corporate demand.
Maintain HOLD with a higher target price of S$1.47 (previously S$1.41).

CDL Hospitality Trust (CDREIT) and Frasers Hospitality Trust (FHT) reported their latest quarterly results.

Results above expectations; maintain HOLD with a higher target price of S$1.47 (previously S$1.41), based on two-stage DDM (required rate of return: 7.4% and terminal growth rate: 1.4%).
4Q16 DPU of 3.11 S cents increased 3.3% yoy, bolstered by one-off capital distributions.
Gross revenue and NPI saw respective declines of 3.6% and 0.3% yoy due to weaker performance from the Singapore and Maldives portfolios.
The results came in ahead of our and consensus expectations, with FY16 core DPU forming 105% of our full-year estimate, due to better-than-expected performance in New Zealand and Japan.
We roll forward our valuations and tweak FY17-18 estimates upwards by 3.4% and 3.3%, factoring in higher contributions from the Auckland asset.

Singapore hotels (69.1% of total AUM) saw 4Q16 RevPAR decline 10.5% yoy as average daily rates declined 7.5% yoy to S$184, while occupancy also shed 2.9ppt yoy to 83.6%.
For the first 24 days of Jan 17, CDREIT's Singapore hotel portfolio RevPAR declined 0.9% yoy. Management has not ruled out a potential recovery in Singapore RevPAR in 2018.

CDREIT’s New Zealand asset registered 24.9% yoy growth in RevPAR and nearly doubled NPI contribution in 4Q16, after the REIT manager commenced a new lease structure in Sep.
Recently acquired UK asset Cambridge City Centre (5.4% of AUM) registered RevPAR growth of 10.8% yoy in 4Q16 due to increased corporate demand as renovations were completed last April.
Management expects growth in leisure travel from a weaker GBP, which allows for greater variable income contribution from a thriving hospitality scene.

This was underpinned by Orchard Hotel (-5.6%), Copthorne King’s Hotel (-4.1%), Studio M (-3.8%) and Claymore Connect (-15.1%). This was despite cap rate compression of around 100bp assumed by newly-appointed valuer Knight Frank for the Singapore portfolio.

Management announced AEI plans for Novotel Clark Quay, which are slated to begin in 1Q17.
While capex outlay is unclear for now, management opined that disruption is unlikely to be severe, with occupancy expected to shed a few percentage points.

Cautious on the domestic outlook, with management pointing to a more tepid events calendar (lacking biennial events like the Singapore Airshow and Food & Hotel Asia) in 2017. We understand that CDREIT has been accepting Chinese leisure travellers, with corporate clientele now accounting less than 50% of the overall (historically >55%).
Likely indigestion pangs from 2017’s supply glut, with about 3,767 rooms slated to come on-stream, representing a 5.9% increase over 2016’s supply.
Mid-tier (41% of total) and upscale/luxury (46% of overall) room supply would account for about 87% of rooms in 2017, according to consultant Horwath HTL.

Vikrant Pandey UOB Kay Hian | Derek Chang UOB Kay Hian | http://research.uobkayhian.com/ 2017-01-27

UOB Kay Hian SGX Stock Analyst Report HOLD Maintain HOLD 1.47 Up 1.410