CDL Hospitality Trusts - OCBC Investment 2016-05-03: Downgrade to HOLD given price appreciation

CDL HOSPITALITY TRUSTS CDLHT J85.SI

CDL Hospitality Trusts: Downgrade to HOLD given price appreciation

CDL Hospitality Trusts’ (CDLHT) 1Q16 gross revenue increased 5.8% YoY to S$44.7m, making up 23.5% of our full-year forecast.
Income available for distribution fell 8.5% to S$21.9m. As a result, DPU fell 9.0% to 2.22 S cents in 1Q16, making up 21.8% of our full-year forecast.
For CDLHT’s Singapore hotels, which make up 70.5% of its entire portfolio valuation, occupancy dropped 3.8 ppt to 83.9% YoY while Average Room Rates (ARR) fell 3.0% to S$191. This resulted in a REVPAR drop of 6.9% to S$161.
CDLHT’s Singapore hotels suffered from weak corporate demand in the industry, also noted by other hospitality REITs, as well as soft room refurbishment in M Hotel and renovations at Grand Copthorne Waterfront.

CDLHT’s Australian hotels continue to be affected by a weaker AUD as NPI fell 18.7% YoY in 1Q16.
Mining investment in the country continues to be weak; upcoming hotel room supply in Perth and Brisbane may pose a drag to REVPAR.
CDLHT’s Maldives Resorts clocked poor results, recorded a REVPAR decline of 28.7% in 1Q16 on the back of a strong USD, which depressed high-end leisure discretionary spending.
CDLHT’s UK and Japan hotels were bright spots, registering a 7.3% and 7.5% YoY jump in REVPAR respectively.
Contributions from New Zealand benefitted from the recognition of full year variable rent for the first time.

Plans to be completed within the year include M Hotel’s ongoing refurbishment of standard and deluxe rooms, as well as Grand Copthorne Waterfront Hotel’s lobby renovation, addition of ~330 sq m of meeting room capacity, and augmentation of F&B offerings.
For CDLHT’s overseas assets, a bar refurbishment has been planned for Novotel Brisbane and lobby/room refurbishment is ongoing at Rendevous Hotel Auckland.
While we are optimistic that the Singapore renovations will place CDLHT in a better operating position going forward, we continue to be concerned with the weak industry outlook.
Given the recent price appreciation, we downgrade to a HOLD at the same fair value of S$1.38.

Deborah Ong OCBC Securities | http://www.ocbcresearch.com/ 2016-05-03

OCBC Securities Analyst Report HOLD Downgrade BUY 1.38 Same 1.38