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.
CDL Hospitality Trust (CDREIT SP/HOLD/ S$1.42/Target: S$1.47)
- 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’s operating performance saw further weakness due to supply-side pressure, corporate-demand contraction and renovations.
- 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.
Cushioned by overseas assets in the UK and New Zealand.
- 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.
Overall portfolio value declined 1.3%, mainly due to the Singapore Hotel portfolio (valuation loss of 3.2%).
- 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
- 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.