CDL Hospitality Trust - UOB Kay Hian 2016-01-29: Results in line with expectations

CDL Hospitality Trust - UOB Kay Hian 2016-01-29: Results in line with expectations CDL HOSPITALITY TRUSTS CDLHT J85.SI 

CDL Hospitality Trust (CDREIT SP) - Results in line with expectations

 Results in line with expectations; maintain BUY

  • ... and target price of S$1.64, based on two-stage dividend discount model (required rate of return: 7.7% and terminal growth rate: 1.6%). 
  • Excluding distribution from capital gains of 0.11 S cents from the Japan portfolio, 4Q15 core DPU of 2.9 cents declined 7.3% yoy. 
  • On a same-store basis, gross revenue declined 8.1%, mainly attributable to its Singapore hotels and Maldives resorts. 
  • Core DPU came in within expectations at 102.3% of our estimates. 

 Operational highlights. 

  • Occupancy among CDREIT’s Singapore hotel portfolio saw a 3.7ppt qoq decline to 86.5% while average daily rates (ADR) declined 1% qoq to S$199 in the latest quarter. 
  • On the whole, 4Q15 saw Singapore hotel RevPAR decline 4.9% to S$172. 
  • Gearing hit 36.4% (3Q15: 36.5%) while borrowing costs also improved to 2.5% during the quarter (3Q15: 2.6%). 
  • Fixed-rate borrowings made up 60% of total debt. 

 The Singapore portfolio saw 4Q15 RevPAR decline 7% yoy to S$172 

  • ... as both occupancy and average daily rate registered declines of 3.7% and 1.0 ppt respectively. 
  • Management attributed this to the ongoing refurbishment at Grand Copthorne and M Hotel, coupled with supply side pressure. 
  • In the Maldives, RevPAR declined 30.6% yoy, attributed to the slowdown in Chinese visitors amidst a corruption crackdown, devaluation of the Chinese renminbi, while the rouble and euro languished against the US dollar. 
  • NPI contribution from Australia was also down, declining 8.3% yoy, on a weaker AUD and the slowing mining sector, while fixed rent from New Zealand also declined 4.8% yoy due to the weaker NZ$. 

 Revaluation losses in Singapore and Australia despite tightening cap rates. 

  • The Singapore and Australia portfolio saw their respective values decline 1.6% and 5.5% in the latest valuation exercise. This occurred despite cap rate compression of over 20bp for the Singapore portfolio (5.5% cap rate) and 50bp for the Australian assets. 
  • Management cited the softer sector outlook as a reason for the slightly lower RevPAR assumptions made by the independent valuers, in addition to rolling forward of the financial year in cash flow assumptions. 

 Capitalising on Japan. 

  • 4Q15 saw Japan portfolio post RevPAR growth of 18.1% yoy as visitor arrivals in Japan surged 47.1% yoy to reach 19.7m visitors ytd in 2015. This was attributed to the high influx of Chinese tourists, bolstered by the weaker yen and visa exemptions. Distributions from Japan from 19 Dec 14-30 Sep 15 were paid out as capital gains in 4Q15. Distributions from Japan will subsequently occur bi-annually, at a six-month interval. 

 Sprucing up existing assets. 

  • Grand Copthorne Waterfront commenced refurbishment of its lobby and reception areas in Nov 15, and is slated for completion come 2H16. 
  • Also due for completion in 2H16 is the refreshment of 115 club rooms at M Hotel, which is set to begin in 2Q16. This comes on the back of the existing AEI at M Hotel which is scheduled to complete by Apr 16. 

 Cautiously optimistic on visitor arrivals in 2016. 

  • Singapore saw total visitor arrivals grow 0.4% yoy to reach 13.8m ytd 11M15. This was underpinned by resurgent Chinese arrivals (+21.2% yoy), Singapore’s second largest source of arrivals (14%). However, Indonesian arrivals (17.5% of total), continued to languish in 11M15 ytd, falling 10.7% yoy. 
  • Management remains cautiously optimistic on the visitor arrival growth in 2016 citing a good line-up of corporate events this year including the biennial air show. This would help to offset the impact of the 6.4% increase (3,930 rooms) in hotel room supply and mainly stable occupancies. 

 Exploring perps for acquisitions. 

  • Management has expressed its comfort in using perpetual securities to finance acquisitions given the limited debt headroom of S$154.7m (40% gearing limit assumed). 
  • Potential acquisitions would lie in target markets Japan as well as gateway European cities Berlin and Barcelona. However, acquisitions in Singapore and Australia have not been ruled out.

Vikrant Pandey UOB Kay Hian | Derek Chang UOB Kay Hian | http://research.uobkayhian.com/ 2016-01-29
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 1.64 Same 1.64