CDL Hospitality Trust (CDREIT) - UOB Kay Hian 2017-07-31: 2QFY17 Results Above Expectations

CDL HOSPITALITY TRUSTS J85.SI

CDL Hospitality Trust (CDREIT) - 2QFY17 CDREIT Results (Above Expectations)

Results of CDREIT above expectations. CDREIT’s management is on the lookout for acquisitions in Singapore, Australia, the UK and Germany post the recent equity fund-raising.
Maintain HOLD with an unchanged target price of S$1.62.
Maintain OVERWEIGHT on the sector.

2Q17 gross revenue and NPI saw respective increases of 12.7% and 11.4% yoy, due to contributions from the newly-acquired Lowry Hotel in Manchester, UK and from the New Zealand Hotel due to higher variable rental income from strong hotel performance.
1Q17 DPU of 2.08 S cents was down 3.7% yoy due to the dilutive effects of the rights issue.
The results were marginally above our expectations with 1H17 DPU excluding rights of 4.91 S cents (+10.1% yoy) accounting for 52.9% of full-year estimates.

Management remarked that the Singapore hospitality market remained competitive due to strong price competition in the market and the absence of the Food & Hotel Asia event. Despite this, there was a marginal growth in occupancy, but RevPAR decreased marginally by 1.4% yoy.
Management envisions that supply-side pressure will continue, with a 4% yoy growth in room stock, as compared with end-16.

Although RevPAR in Japan declined by 4.2% yoy due to the high price sensitivity of the economy accommodation market in Tokyo, occupancies remained strong. However, management holds a positive outlook on their Japanese portfolio, as they look forward to the Olympics and relaxed visa requirements for Chinese tourists.

This was largely due to declining tourism demand from China and pricing pressures within the market.
Management has been working to improve the market mix and also taken on cost containment measures.

Although Hilton Cambridge City Centre recorded a 2.8% yoy growth in RevPAR, The Lowry Hotel in Manchester experienced a decline in RevPAR due to the Manchester bombings. Uncertainty remains in the UK with the outcome of EU exit negotiations and its effects on corporate demand.

This was due to the strong line-up of sporting events, including World Masters Games and the British and Irish Lions Rugby Tour and an increase in international air services.

From the enlarged debt headroom from the rights issue, management has said they are looking to pursue suitable acquisitions in Singapore, Australia, UK and Germany.

Vikrant Pandey UOB Kay Hian | http://research.uobkayhian.com/ 2017-07-31

UOB Kay Hian SGX Stock Analyst Report HOLD Maintain HOLD 1.620 Same 1.620