CDL Hospitality Trusts - OCBC Investment 2016-08-01: Upgrade to BUY on valuation grounds

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CDL HOSPITALITY TRUSTS CDLHT J85.SI 

CDL Hospitality Trusts: Upgrade to BUY on valuation grounds

• 2Q16 DPU fell 0.9% YoY.
• FV increases to S$1.53.
• Upgrade to BUY.

2Q16 results in line with expectations

• CDL Hospitality Trust's (CDLHT) 2Q16 results were within expectations. 
• 2Q16 DPU fell 0.9% to 2.23 S cents, coming up to 21.8% of our full- year forecast. In comparison, 2Q15 DPU contributed 22.3% of FY15 DPU. 
• Gross revenue increased 8.9% YoY to S$42.5m, largely due to the S$5.8m contribution from Hilton Cambridge City Centre and an incremental revenue boost of S$0.9m from the refurbished Claymore Connect. 
• 2Q gross revenue came up to 22.3% of our full- year forecast. 2Q16 NPI dropped 0.9% YoY to S$31.3m on the back of soft trading conditions in Singapore and the Maldives markets, as well as lower contribution from New Zealand and Australia markets due to local currency weakness. 
• 2Q16 distributable income after retention and capital distribution fell 0.3% YoY to S$22.1m.

Singapore hotels report 9.2% drop in RevPAR

• CDLHT’s Singapore hotels reported both lower occupancy and ARR in 2Q16. Occupancy fell 3.0 ppt YoY to 83.5%, while the ARR fell 6.0% YoY to S$188. As a result, RevPAR fell 9.2% YoY to S$157. 
• CDLHT highlighted the absence of SEA Games in June as having a significant impact with 4 out of 6 of its Singapore hotel assets being designated as SEA Games hotels last year. 
• The Australian assets reported a decline in NPI of 3.3% YoY due to the weaker AUD during the quarter. 
• The Maldives resorts continue to perform badly, with a RevPAR decline of 26.6% YoY due to the continued strength of the USD against the euro and rouble, as well as a decline in Chinese visits for the first five months in 2016.

Lowered risk-free rate

• We have lowered our risk-free rate for CDLHT from 3.0% to 2.4% and lowered our beta given the enhanced portfolio diversification by geography. Our cost of equity comes up to 7.5%. 
• After the fine-tuning of assumptions mentioned above, our fair value increases from S$1.38 to S$1.53. 
• Against yesterday's price of S$1.47, CDLHT is currently trading at a blended FY16/17 forecasted yield of 6.7%. 
• We upgrade CDLHT to a BUY with a fair value of S$1.53.

Deborah Ong OCBC Securities | http://www.ocbcresearch.com/ 2016-08-01

OCBC Securities Analyst Report BUY Upgrade HOLD 1.53 Up 1.38