CDL Hospitality Trusts - RHB Invest 2017-01-27: 4Q16 Results Flash ~ No signs of bottoming yet

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CDL HOSPITALITY TRUSTS J85.SI

CDL Hospitality Trusts - 4Q16 Results Flash ~ No signs of bottoming yet

• We make no change to our NEUTRAL rating, forecast and DDM-derived TP of SGD1.47 (CoE: 8.1%, Tg: 1.0%). 
• The stock offers FY17F dividend yield of 7.3%.

Highlights 

• 4Q16 DPU was up 3.3% YoY mainly on the back of one-off consumption tax refund of SGD2.5m relating to its Japan hotel acquisition. Excluding the one-off, DPU was down 4.7% YoY. 
• For FY16 DPU dropped marginally by 0.6% YoY. Excluding the one-off item, the results were in-line with our expectations.
• Singapore still accounts for 62% of FY16 NPI (FY15: 66%). Other markets contribution were as follows: 10% from Australia (FY15: 11%), 10% from New Zealand (FY15: 7%), 8% from Maldives (FY15: 10%), 4% from Japan (FY15: 4%) and 6% from the UK (FY15: 2%).
• Hotel performance in Singapore remains weak with 4Q16 RevPAR declining 10.5% YoY as rates declined 7.5% and occupancy declined 2.9ppt YoY. Key reasons for the weak business performance were 
  1. strong competition from new supply, 
  2. soft corporate market, and 
  3. change in mix of visitor arrivals and average length of stay (ALOS).
• Here are the highlights from other markets for the 4Q16 period:
  • Positives 
    • NZ RevPAR rose 24.9% YoY with surge in demand. CDL Hospitality Trusts (CDLHT) also benefitted from a change in leasing structure with higher variable component.
    • UK RevPAR rose 10.8% YoY as demand improved on the back of AEI and weaker currency. However NPI were lower due to weaker GBP.
    • Australia NPI contribution improved 4.2% due to strong AUD.
  • Negatives 
    • Maldives RevPAR declined 25.1% YoY due to strong USD and slowdown in Chinese luxury travel.
    • Japan RevPAR declined 5.0% YoY due to competition from new supply.
• Retail space at Claymore Connect (formerly known as Orchard Hotel Shopping Arcade) achieved committed occupancy of 91% with rents of SGD8-9 psf per month.
• Gearing stands at 36.8% with no loan due until June 2018. About 61% of its debt is fixed.
• Portfolio valuation declined by 1.2% in line with weaker operational performance. NAV/unit stands at SGD1.55.

Key takeaways

• Outlook for Singapore hotels business remains challenging in 2017 with supply expected to increase 5.9% YoY outstripping demand. We expect CDLHT RevPAR to decline by 5-10% in 2017. YTD RevPAR for Jan (24 days) has declined by 0.9% YoY.
• Outlook for Maldives remains negative too with arrival of new supply and strong USD.
• On the positive front, NZ looks promising with strong improvement in room rates and occupancies. CDLHT will continue to benefit from strong demand given that higher variable rent structure is in place. Japan, UK and Australian market performance are expected to remain relatively flat in 2017.
• Management is looking out for acquisition opportunities in Europe, Japan and NZ.

Our View

• We maintain our NEUTRAL recommendation amidst a challenging outlook for hotel business and consumer spending in 2017. 
• The stock offers FY17F dividend yield of 7.3 % and is trading at 0.9x P/BV.
• A potential turnaround could come in 2018 with hotel supply bottoming out.

Vijay Natarajan RHB Invest | http://www.rhbinvest.com.sg/ 2017-01-27

RHB Invest SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 1.470 Same 1.470