CDL Hospitality Trusts CDREIT - UOB Kay Hian 2017-04-27: 1Q17 Results In Line

CDL HOSPITALITY TRUSTS J85.SI

REITs − Singapore - 1Q17: Results Of CDREIT (In Line)

CDREIT’s results are in line with expectations. Singapore hotel RevPAR dipped 0.8% yoy in 1Q17.
Management remains cautious on the domestic hospitality scene.
Maintain HOLD on CDREIT with an unchanged target price of S$1.47.

Results in line with expectations; maintain HOLD with an unchanged target price of S$1.47, based on two-stage DDM (required rate of return: 7.4% and terminal growth rate: 1.4%).
1Q17 gross revenue and NPI saw respective increases of 3.9% and 6.4% yoy, due to higher variable income on improved performance from its New Zealand asset (Grand Millennium Auckland). The NZ hotel’s lease structure was converted from a largely fixed rent structure, to one with higher variable rent.
1Q17 DPU of 2.42 S cents (+9.0% yoy) was in line with expectations, forming 26.1% of our full-year estimates

Singapore hotels (69.1% of total AUM) saw 1Q17 RevPAR dip 0.8% yoy, as the decline in average daily rate of 5.9% yoy offset occupancy growth of 4.5ppt yoy.
Management attributed the dip in RevPAR to tepid corporate activity, particularly for the O&M and Financial sectors, as well as price competition due to new supply of hotel inventory.

For the first 24 days of Apr 17, CDREIT's Singapore hotel portfolio RevPAR declined by 8.7% yoy. This was likely attributable to the lack of biennial events occurring this month, such as the Food & Hotel Asia event.
Management opined that Easter falling on April this year as opposed to March last year could also have been a contributing factor to slower trading performance as corporate demand typically slows during holidays.

CDREIT’s New Zealand asset registered respective RevPAR and NPI growth of 27.6% yoy and 90.2% yoy in 1Q17, after the REIT manager commenced a new lease structure in Sep 16.
The Maldives properties registered RevPAR growth of -8.8% yoy in 1Q17. This was attributed to supply-side pressure on rates and competitive pricing by peer hoteliers. Management intends to pursue cost containment strategies (labour and utilities) in the Maldives.
The UK registered RevPAR growth of 17.9% yoy in 1Q17, although the weaker GBP against the SGD led to NPI contributions declining 2.2% yoy. Management expects growth in leisure travel from a weaker GBP, which allows for greater variable income contribution from a thriving hospitality scene.

Cautious on domestic outlook, with management pointing to a more tepid events calendar (lacking biennial events like the Singapore Airshow and Food & Hotel Asia) in 2017. In addition, corporate travel (O&G and finance) remains subdued.
We understand that CDREIT has been accepting Chinese leisure travellers, with corporate clientele now accounting for 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/ 2017-04-27

UOB Kay Hian SGX Stock Analyst Report HOLD Maintain HOLD 1.470 Same 1.470

HOLD Maintain HOLD 1.800 Same 1.800