CDL Hospitality Trusts - DBS Research 2016-06-20: Still offering long-term value

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CDL HOSPITALITY TRUSTS J85.SI 

CDL Hospitality Trusts - Still offering long-term value

• Appoints new operator for Auckland hotel
• New lease structure to provide greater leverage to growing Auckland market
• Raise FY16-17F DPU by 0.3-1.1%

Attractive valuations. 

• We maintain our BUY call with a revised TP of S$1.51. 
• 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 that it still offers compelling long- term value (discounted implied price per key) – thus rewarding investors who wait (6.5% 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. 

• With the appointment of Millennium & Copthorne Hotels as the new operator at its Auckland property with a new lease structure, we expect an earnings boost from September 2016 onwards. 
• Beyond this, CDREIT should benefit from AEIs being undertaken at Grand Copthorne Waterfront Hotel and M Hotel in Singapore.

Valuation:

• After incorporating the appointment of a new operator and rebranding of Rendezvous Hotel Auckland to Grand Millennium Auckland, we raise our FY16-17F DPU by 0.3-1.1% and nudge up our DCF-based TP to S$1.51 from S$1.50.

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. Through the interactive Trefis model, we showcase our estimates given CDREIT’s Sensitivity to RevPAR and Interest Rates.

Mervin Song CFA DBS Vickers | Derek Tan DBS Vickers | http://www.dbsvickers.com/ 2016-06-20

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.51 Up 1.50