CDL Hospitality Trust - UOB Kay Hian 2015-10-30: Results below expectations

CDL HOSPITALITY TRUSTS CDLHT J85.SI

CDL Hospitality Trust - Results below expectations

Results below expectations; Maintain BUY with a reduced target of S$1.64 based on two-stage dividend discount model (required rate of return: 7.8% and terminal growth rate: 1.6%).
2015-17 DPU estimates were reduced by 4-5% mainly on lower assumed ADR and occupancy.
3Q15 DPU declined 9.7% yoy, with 9M15 DPU of 7.05 S cents below our and consensus expectations at 69.4% of full-year estimates on exclusion of Japanese contributions, higher interest costs on Japan acquisitions and Claymore Connect, weaker performance from hotels in Singapore, Australian and New Zealand.

Occupancy among CDREIT’s Singapore hotel portfolio saw a 1.2ppt decline to reach 86.5% in the latest quarter. Gearing saw a 4.5 ppt qoq increase to hit 36.5% in 3Q15. Borrowing costs remained flat at 2.6% during the quarter (2Q15: 2.7%). Floating rate borrowings at 60% of total borrowings.

Japan Hotels saw RevPar leap 20.9% as visitor arrivals in Japan surged 48.8% yoy to reach arrivals 14.5m ytd in Sep 15. (9.1m in June). This was attributed to a weaker yen and tourism-friendly initiatives like visa exemptions. Distributions from Japan will likely come in 4Q15, however, due to compliance with TMK rules.
Singapore saw 3Q15 RevPar decline 5.7% yoy to S$181, as both occupancy and average daily rate registered declines of 1.8 ppt and 3.8 ppt respectively. Management attributed this to more public holidays (disruption to corporate travel) and the haze.
NPI contribution from Australia was down under on a weaker AUD, declining 12.9% yoy while fixed rent from New Zealand also declined 9.6% yoy due to forex volatility.
In the Maldives, RevPar declined 18.3% yoy, attributed to the slowdown in Chinese visitors amidst a corruption crackdown, devaluation of the Chinese yuan, while the rouble and euro languished against the US dollar.

The 19.3% ytd spike in Chinese tourist arrivals (as of Aug 15), was ameliorating in light of the continued softening of Indonesian arrivals (-11.2% ytd Aug). As overall numbers recovered 7.9% and 6.% yoy respectively in Jul and Aug, this led to an allin dip of 0.6% ytd Aug in foreign visits.
The Indonesians and Chinese comprise approximately 17.8% and 14.3% of total tourist figures from Jan-Aug 15.

The hospitality sector is set to expand 4% in 2015, adding some 1,914 rooms before the year is out with upscale/luxury rooms making up approximately 28% of incoming supply due to hit the market.

With debt headroom of S$149.3m assuming gearing limit of 40%, scope exists for overseas expansion. Management remains on the active lookout for acquisitions in preferred target market Japan. However, acquisitions in Singapore, Maldives and Dubai have not been ruled out.

Vikrant Pandey UOB Kay Hian | Derek Chang UOB Kay Hian | http://research.uobkayhian.com/ 2015-10-30

UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 1.64 Down 1.73