CDL Hospitality Trust - UOB Kay Hian 2016-05-11: Investor Luncheon With Management

CDL Hospitality Trust - UOB Kay Hian 2016-05-11: Investor Luncheon With Management CDL HOSPITALITY TRUSTS CDLHT J85.SI 

CDL Hospitality Trust (CDREIT SP) - Investor Luncheon With Management

  • Investor queries were centred on 1Q16’s operating performance and the hospitality sector outlook. 
  • Domestic portfolio weakness was attributed to disruptions from renovations, and softer corporate demand. 
  • Management displayed stoic optimism, pointing to a possibly better 2H16 while acknowledging supply headwinds (6.5% expansion in rooms this year). This could be supported by the completion of ongoing renovations by 2H16 and decent June bookings. 
  • Maintain BUY with an unchanged target price of S$1.55.


  • We hosted the management of CDL Hospitality Trust to an investor luncheon. 
  • Queries were centred on CDREIT’s 1Q16 operating performance, and its outlook on the hospitality sector.


Domestic portfolio weakness on disruption from renovations and softer corporate demand. 

  • The Singapore portfolio saw 1Q16 RevPAR decline 6.9% yoy to S$161, as both occupancy and average daily rate registered yoy declines of 3.8 ppt and 3.0% respectively. 
  • Management attributed this to the ongoing refurbishment at Grand Copthorne Waterfront and M Hotel, weak corporate demand, and supply side pressure. Excluding the impact from renovations, 1Q16 RevPAR would have declined 5% yoy. 
  • The Easter holiday falling in March this year as opposed to April in 2015 also affected trading performance, as corporate demand typically slows during holidays.

Singapore witnessed healthy visitor arrivals. 

  • Domestic visitor arrivals witnessed growth of 12.3% yoy in 2M16. 
  • Management asserted that by positioning its assets towards the corporate crowd, it was unable to fully capitalise on the nascent rise in tourist arrivals. With lacklustre demand from the O&G and finance sectors, 1Q16 saw corporate demand accounting for approximately 50% of overall demand (historically mid- to high- 50s). 
  • Management reckons that the current trend of a nearly-even split between corporate and leisure demand may likely continue.

Cautious optimism despite headwinds...  

  • We note that management’s tone was measuredly positive, pointing to decent June bookings and RevPAR growth of 1% in the first 27 days of April. 
  • Acknowledging that corporate demand would continue to be affected by the O&G and finance sector slowdown, management intends to pursue demand from IT, pharmaceutical, and the public sectors. 
  • Management was gratified by the S$700m shot in the arm from the Singapore Tourism Board, which it reckons could spur MICE activity next year. This comes as 3,930 rooms (6.5% expansion are set to hit the market this year (M Social, Hotel Grand Central). 
  • Existential competing hotels include newly refurbished Intercontinental Hotel (completed Feb 16) and Swissotel Stamford.

...could see more domestic acquisitions. 

  • Bucking the recent trend of overseas expansion, CDREIT has flagged its interest in bulking up its domestic presence (currently 70.5% by asset value). 
  • With gearing at 36.7%, CDREIT’s implied debt headroom stands at about S$140m, assuming a comfortable gearing level of 40%. 
  • We see M Social as a likely acquisition target in Singapore.

Could be propped up by revitalisation of existing assets. 

  • Grand Copthorne Waterfront’s refurbishment of its lobby and reception areas (commenced in Nov 15), is slated for completion by end-3Q16. 
  • Also due for completion in 2H16 is the refreshment of both standard and club rooms at M Hotel. The absence of disruptions at both hotels in the later half of the year, coupled with the refreshed settings and additional 330sqm of meeting space (two function rooms), could support potential stabilisation of portfolio operating performance.

• Capitalising on New Zealand and Japan. 

  • Its New Zealand portfolio saw NPI growth of 12.4% yoy, on recognition of full-year maiden variable income contributions and the robust hospitality scene. 
  • Management also highlighted that it is currently in the midst of renewing the New Zealand master lease, which is due to roll off by September this year. 
  • On the other hand, 1Q16 saw its Japan portfolio post RevPAR growth of 7.5% yoy, with same-store NPI growing 9.0% yoy in the quarter. This was attributed to the high influx of Chinese tourists, bolstered by the weaker yen and visa exemptions. 
  • Distributions from Japan will be paid out in 2Q16 as they will be distributed bi-annually, at a six-month interval.

• Sombre news from other overseas assets. 

  • In the Maldives, RevPAR declined 28.7% yoy, as top source market China saw a 10.8% slowdown in visitors amidst an austerity clampdown and weak Chinese renminbi, while the rouble and euro languished against the US dollar. 
  • NPI contribution from Australia came in down under, declining 18.7% yoy, on a weaker Australian dollar and slowing mining sector.


  • We retain our earnings estimates. 


  • Maintain BUY with an unchanged target of S$1.55, based on DDM (required rate of return: 7.9%, terminal growth: 1.6%).


  • Pickup in corporate demand. 
  • Yield-accretive acquisitions. 
  • Slower rise in interest rates

Vikrant Pandey UOB Kay Hian | Derek Chang UOB Kay Hian | 2016-05-11
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 1.55 Same 1.55