CDL Hospitality Trust - CIMB Research 2017-01-27: Underlying trends remain largely the same

CDL HOSPITALITY TRUSTS J85.SI

CDL Hospitality Trust - Underlying trends remain largely the same

FY16 DPU of 10.01 Scts (-0.5% yoy) was above our expectation, forming 108% of our full-year forecast. 4Q16 DPU of 3.11 Scts (+3.3% yoy) was at 34%.
Excluding the one-off consumption tax, FY16 DPU would have been 9.75 Scts, down 3.1% yoy.
Underlying trends remain largely the same: Singapore and Maldives remain challenging; Japan’s good performance is tapering; UK is affected by FX translation.
NZ to finally enjoy robust growth with the change in master lease.

4QFY16 outperformance sprang from better-than-expected contributions from the New Zealand hotel, which benefitted with the change from a largely fixed rent structure to a more significant variable component.
Otherwise, underlying trends remain largely the same. Distribution income was also boosted by a one-off consumption tax of S$2.5m (0.25 Scts/share) relating to the Japan hotels acquisition. Excluding this, FY16 DPU would have been 9.75 Scts (-3.1% yoy).

CDREIT recorded a fair value loss of S$21.6m for FY16. The fair value loss mainly arose from its Singapore and Maldives properties but was partially offset by a fair value gain on its NZ and Australia properties.
Additionally, there was an S$8.1m impairment charge on the PPE arising from Jumeirah Dhevanfushi.

Against a backdrop of c.2% increase in visitor days and c.4% increase in room nights in 2016, CDREIT’s Singapore RevPAR fell 10.5% yoy in 4Q16 (the sharpest drop among the four quarters); and 8.6% yoy in FY16 to S$160. RevPAR is now around 2007-levels.
With c.5% increase in room nights for 2017, we expect a single-digit decrease in FY17.
We only expect to see some relief in 1H18.

In terms of US$, Maldives recorded RevPAR yoy declines of 14.7% and 25.1%. It Is difficult to envision a recovery in 2017.
With new room supply, Japan’s RevPAR (¥) dropped 5% yoy for 4Q16 but rose 0.6% yoy for FY16. We expect muted RevPAR growth going forward.
Lastly, UK’s RevPAR (£) grew 10.8% yoy for 4Q16 and 11.9% for FY16. However, FX translation resulted in lower yoy NPI contribution.

With the change in lease structure, NZ is finally able to enjoy robust growth. On the back of the addition of new international air services, NZ’s RevPAR (NZ$) grew 24.9% yoy in 4Q16. Grand Millennium Auckland is enjoying occupancy in the 90s, and we expect the market there to remain tight.

We made several earnings changes that partially offset one another, resulting in a 2.3- 3.5% increase in FY17-18F DPU.
We also introduce our FY19F numbers. We hiked up NZ contributions on higher RevPAR and gross margin assumptions; up Claymore Connect on higher rent and margin assumptions; and higher gross margin for the UK.
On the other hand, we cut contributions from Singapore, Maldives and Japan.

Our DDM-TP (S$1.42) is raised as we roll forward our valuation and raise our projections.
With no clear catalyst and limited upside, we maintain Hold on CDREIT.
Upside/downside risks hinge largely on Singapore hospitality market.

YEO Zhi Bin CIMB Research | LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2017-01-27

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