CDL Hospitality Trusts - DBS Research 2016-05-03: Still offering long term value

CDL Hospitality Trusts - DBS Research 2016-05-03: Still offering long term value CDL HOSPITALITY TRUSTS J85.SI 

CDL Hospitality Trusts - Still offering long term value

  • 1Q16 DPU of 2.22 Scts (-9% y-o-y) below expectations
  • Underperformance from Maldives and Australian operations
  • Near-term outlook still uncertain but CDREIT offers long-term value to eventual upturn

Attractive valuations. 

  • We maintain our BUY call with a revised TP of S$1.50. 
  • Although CDREIT’s share price has rallied by over 15% from its lows in January and the counter faces negative headlines such as 
    1. excess new room supply in Singapore, and 
    2. weakness in its Maldives operations due to soft demand, 
    we believe it still offers compelling long-term value (discounted implied price per key) while paying investors who wait (6.7% yield based on 90% payout ratio) for the eventual upturn.

Cheapest REIT to ride the eventual upturn. 

  • CDREIT’s implied price per key for its Singapore portfolio stands at c.S$500k which is below its replacement cost of c.S$700k, recent market transactions of above S$650k and that of other listed Singapore hospitality REITs of between S$650k and S$1m. 
  • Given the quality of the portfolio and CREIT’s long-term track record, we believe this discount is unwarranted. Thus, CDREIT is the cheapest REIT providing exposure to the eventual upturn in the Singapore hospitality market which may occur from 2017 as supply pressures ease.

Optimising portfolio. 

  • We expect additional upside to CDREIT’s earnings as it optimises its portfolio. 
  • The initial 10-year lease at Rendezvous Grand Hotel Auckland (c.9% of 1Q16 NPI) will end at the conclusion of FY16, which presents an opportunity to appoint another operator or renegotiate better lease terms. This is on top of AEIs being undertaken at Grand Copthorne Waterfront Hotel and M Hotel in Singapore.


  • To account for the weaker-than-expected Maldives, Japanese and Australian operations, we cut our FY16-17F DPU by 3% and lowered our DCF-based TP to S$1.50 from S$1.54.

Key Risks to Our View:

Weaker-than-expected demand supply outlook in Singapore. 

  • The key risk to our view is a weaker-than-expected demand- supply outlook for the Singapore hospitality market, resulting in a lower RevPAR performance compared to our estimates. This may be due to a decline in tourist arrivals into Singapore.

Mervin Song CFA DBS Vickers | Derek Tan DBS Vickers | 2016-05-03
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.50 Down 1.54