CDL Hospitality Trust - CIMB Research 2016-07-15: Still-challenging 2016 is a harbinger for share price performance to mean-revert

CDL HOSPITALITY TRUSTS CDLHT J85.SI

CDL Hospitality Trust - Still-challenging 2016 is a harbinger for share price performance to mean-revert

Among our coverage, we expect CDREIT to post a weaker performance than its peers in 2Q16. Our FY16 DPU is 5% below Street’s.
Disconnect between visitor arrivals & SG hotels’ performance.
We expect Maldives to earn only slightly above its base rents. UK will be the sole bright spark.

We have reworked our model; we trim our FY17F-18F DPU but increase our TP on lower Rf assumptions (from 2.9% to 2.2%).

In terms of operations, CDREIT is set to underperform its peers, in our view. However, its YTD share price performance (+12.5%) has outperformed FSTREI (+9%) and the average of our coverage (+7%).
On the cusp of a disappointing 2Q16 performance – we forecast a DPU of 2.18 Scts (-2% qoq; -3% yoy) – we expect near-term weakness in its share price.
We believe that the market has fully valued CDREIT’s longer-term recovery, which is why its share price is near our fundamental DDM-based target price.

We think that the +13% yoy rebound in visitor arrivals in 5M16 and hunt for yield post- Brexit drove CDREIT’s outperformance. However, we reiterate our view that that the quality of visitor arrivals and decline in length of stay offset the positivity coming through.
Industry RevPAR has dipped 0.8% yoy in 5M16. We are forecasting industry RevPAR to decline by 1.6% yoy in 2016. We now project CDREIT to post an 8% decline in RevPAR for 2016. Comparatively, we expect FEHT to halt the slide in its RevPAR.

We expect the weakness in the Maldives to persist. Afflicted by the weaker appetite for luxury markets as well as relative strength of US$ against currencies of its major source markets, especially Rmb, euro and ruble, the Maldives resorts recorded a 29% yoy decline in RevPAR in 1Q16. As a result, we forecast a 9% yoy decline in NPI for the Maldives, and expect the resorts to just earn slightly above their respective base rents.

On the other hand, we expect the UK’s NPI to jump by more than two-fold as the full- year contribution from Hilton Cambridge City (acquired in 01 Oct 2015) comes through.
We also expect an 18% yoy growth in RevPAR thanks to a bump up in ADR (as a result of refurbishment).

We maintain Hold on CDREIT as we believe that the market has fully priced in its longer-term recovery prospects.
Reflecting the drop in Singapore 10-year bond yield, we lower our Rf assumptions (from 2.9% to 2.2%), which pushes up our DDM-target price (S$1.46).
Nearer-term, however, we foresee weakness in CDREIT’s share price on the back of an anemic performance in 2Q16.
Assuming that CDREIT could trade between 6.7-7.1% forward yields, there could be potential near-term 5-10% downside from current levels.

YEO Zhi Bin CIMB Securities | LOCK Mun Yee CIMB Securities | http://research.itradecimb.com/ 2016-07-15

CIMB Securities SGX Stock Analyst Report HOLD Maintain HOLD 1.46 Up 1.38