CDL Hospitality Trusts - RHB Invest 2016-01-29: Further Headwinds Ahead

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CDL HOSPITALITY TRUSTS CDLHT J85.SI 

CDL Hospitality Trusts (CDREIT SP) - Further Headwinds Ahead

• We expect headwinds to persist for CDL 
• Hospitality Trust (CDLHT) this year, mainly due to supply glut and weakness in the tourism sector. 
• We maintain SELL with an unchanged TP of SGD1.14, which implies FY16 P/BV ratio of 0.68x. 
• Despite having more events this year, the management expects room rates to be pressured, given the high uncertainty in the global economic scene. 
• We note that RevPAR for its SG hotels declined by 5.1% YoY for the first 26 days in January. 

 Expect challenges to persist in hospitality business. 

• We remained bearish on the hospitality business this year, mainly due to 
  1. the supply glut of hotel rooms (+c.6%), 
  2. we understand from CDLHT’s management that despite having more biennial events such as Singapore Airshow this year, room rates are expected to be lower in comparison to two years ago and 
  3. revenue per available room (RevPAR) for the quarter fell 7.0% YoY as a result of new hotel supply and an uncertain global economic growth. 

 Weak set of results were within our expectations. 

• CDL Hospitality Trust’s (CDLHT) results came in weak as FY15 distribution per stapled security (DPS) declined c.8% YoY, meeting c.101% of our full year forecast. 
• The weakness in performance was underpinned by a c.8% YoY lower distribution, mainly due to challenges faced within the Singapore hotels and Maldives resorts. 
• Its gearing ratio remained stable at 36.4%, with almost a quarter of its total borrowings expiring in Aug 2016. 

 Booked in revaluation losses despite cap rate compression of c.20bps in SG. 

• CDLHT registered a total revaluation loss of c.SGD39m loss mainly due to its Singapore properties.
• While the cap rate may have compressed to c.5.50%, independent appraisers assumed a more pessimistic outlook in Singapore. 

 We expect no catalysts for hospitality sector, maintain SELL with an unchanged TP of SGD1.14

• ... given the unfavourable global hospitality supply-demand dynamics. An unexpected increase in tourist arrivals is an upside risk to our TP.

Ivan Looi RHB Invest | http://www.rhbinvest.com.sg/ 2016-01-29

RHB Invest SGX Stock Analyst Report SELL Maintain SELL 1.14 Same 1.14