CDL Hospitality Trusts - RHB Invest 2017-07-31: Turning Around

CDL Hospitality Trusts - RHB Invest 2017-07-31: Turning Around CDL HOSPITALITY TRUSTS J85.SI

CDL Hospitality Trusts - Turning Around

  • CDLHT's 2Q17 results are in line. Management sounded cautiously optimistic on the potential recovery of Singapore’s hospitality sector, with room rates close to bottoming out. 
  • The performance of its New Zealand hotel continued to shine, with a staggering 94% YoY increase in NPI. Weakness was seen in its Maldives and Japan hotels due to competitive pricing pressures. 
  • Going forward, its latest European hotel acquisitions should contribute positively to numbers as well. As such, we maintain our BUY call and SGD1.70 TP (7% upside) as we expect the hospitality sector to recovery strongly in 2018. 
  • CDLHT is our hospitality sector Top Pick.

Singapore segment showing bottoming out signs. 

  • In 2Q17, CDL Hospitality Trusts’ (CDLHT) hotel occupancy rate rose 2.7ppts YoY while room rates declined 4.7%, which led to revenue/available room (RevPAR) to dip by 1.4%. 
  • Looking ahead, management expects occupancy rates to stabilise and is looking to gradually increase room rates. In 1-24 Jul, its Singapore hotels’ RevPAR rose 0.9%YoY. 
  • Meanwhile, based on latest data from the Singapore Tourism Board (STB), Horwath HTL and CDLHT, we note that some of 2017’s new room supply has been pushed to 2018, which is a positive. 
  • Overall, we expect hotel rooms demand to far outstrip the supply CAGR of 2.5% (2016- 2019) and estimate RevPAR to grow 3-5% in 2018-2019 respectively after dipping 2% this year.

New Zealand the key near-term growth driver. 

  • Grand Millennium Auckland continued its impressive performance, with net property income (NPI) surging 94% YoY in 2Q17. The strong performance was driven by multiple catalysts that included a visitor arrivals surge, new master lease structure that captures upside and strong brand presence of a new hotel operator in the local market. 
  • With future supply remaining limited in Auckland and visitor arrivals expected to grow, CDLHT’s New Zealand hotel should continue its strong outperformance.

Expanding its presence in Europe. 

  • In 2Q17, CDLHT expanded its European hotel portfolio by acquiring The Lowry Hotel in Manchester, UK, and Pullman Hotel Munich, Germany. Full contributions from these yield-accretive acquisitions would start kicking in from 3Q17 onwards. 
  • In tandem with the recent acquisitions, CDLHT announced a 1:5 fully-underwritten rights issue at SGD1.28/unit, raising gross proceeds of SGD255.4m. The rights shares were 2.2x subscribed, with new shares to begin being traded on 2 Aug.

Weakness in Maldives and Japan likely to persist. 

  • RevPAR from Maldives and Japan hotels declined 16.3% YoY and 4.2% YoY respectively on the back of new hotel room supply. CDLHT is working with the operators of its Maldives resort to improve its market mix as well as cost containment measures. 
  • While the performance of its Maldives and Japan assets is likely to remain subdued in the near term, management remains optimistic of a longer-term recovery.

BUY, with an unchanged TP of SGD1.70. 

  • Our DDM-derived TP is based on a CoE of 7.6% and TG of 1.5%. 
  • Despite recent overseas acquisitions, CDLHT remains one of the best proxies to the expected rebound in Singapore hotel RevPARs. It is our preferred pick among the hospitality REITs too. 
  • The stock offers FY17F-18F yields of 6.3-6.6% respectively, which we deem as attractive.

Vijay Natarajan RHB Invest | 2017-07-31
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 1.700 Same 1.700