CDL Hospitality Trust - CIMB Research 2016-10-28: Markets overshoot, markets undershoot; time to Add

CDL HOSPITALITY TRUSTS J85.SI

CDL Hospitality Trust - Markets overshoot, markets undershoot; time to Add

9M16 DPU of 6.89 Scts (-2.3% yoy) was broadly in line with consensus and our forecast, at 75% of our FY16F. 3Q16 DPU of 2.44 Scts (+3.4% yoy) was at 26%.
Singapore soft due to poor corporate travel, 3Q16 RevPAR down 7.2% yoy.
Maldives remained very weak and we do not envision a recovery in 2017. Hurt by a strengthening ¥, Japan registered a 6.6% drop in RevPAR.
Bright spots sprang from UK and NZ as both recorded double-digit RevPAR growth.

Upgrade from Hold to Add on favourable risk/reward. Catalysts include faster-than-anticipated recovery in the Singapore market.

For 3Q16, CDREIT recorded a 5% yoy improvement in NPI, due mainly to improved performance from NZ (due to change in lease structure which allows the REIT to enjoy more upside) and better-than-expected inorganic contribution from UK. These mitigated a soft Singapore, very weak Maldives as well as Japan, which performed below our expectations.
Distributable income/DPU improved 4%/3% yoy as higher finance expenses (+6% yoy) ate into the NPI growth.

Singapore 3Q16 and 9M16 RevPAR decreased 7.2% and 8% yoy respectively.
Compared to 2Q16, CDREIT was more aggressive in room rates, cutting ARR by 7.5% yoy to S$186. This helped to keep occupancy stable at 90.7% (+0.5% pt yoy).
Hotel performance during F1 race this year was softer, in tandem with the drop in race ticket sales.
Claymore Connect fared below our expectation, on lower NPI margin (9M16: 46.9% vs. forecast of 55%). The mall has achieved committed occupancy of 91%.

We are concerned on a very weak Maldives which continued to register yoy RevPAR declines of > 25%.
Property-specific wise, the luxurious Jumeirah Dhevanafushi fared marginally better vs. Angsana Velavaru.
Against a waning macro backdrop, it is difficult to envision a recovery in the Maldives for 2017.

After healthy RevPAR growth in 1H16, the Japan market turned and recorded a 6.6% decrease in RevPAR in 3Q16. This was mainly due to retracement of room rates by c.10% yoy (in local currency terms) to combat c.16% strengthening of ¥ over preceding period.
Japan’s NPI grew 1.7% yoy in 3Q16.

UK recorded 10.2% growth in RevPAR in 3Q16 due to higher rates from the refurbished product. We expect a weaker qoq in 4Q as it is the off-peak period. Also, NPI for NZ in 3Q16 rose 22% yoy, with underlying RevPAR growth of 9.5%.
CDREIT benefited from a change of lease terms which allowed it to benefit from more variable income.

CDREIT’s share price ascended to a 52-week high in Jul, before spiralling down to the present 52-week low.
We see its fair value at S$1.42 (DDM-derived); and upgrade the stock from Hold to Add.
We trim our FY17-18F DPU by 0.4-1.3% as we temper our RevPAR recovery.
Downside risk may be a worse-than-expected Singapore. But with Singapore RevPAR penciled in at S$156 for FY17F, below 2007’s S$174 (when CDREIT IPO) and just 5% above GFC’s S$149, we deem downside risk as limited.

YEO Zhi Bin CIMB Research | LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2016-10-28

CIMB Research SGX Stock Analyst Report ADD Upgrade HOLD 1.42 Down 1.43