CDL Hospitality Trust (CDREIT) - UOB Kay Hian 2017-10-30: 3QFY17 Results Of CDREIT Below

CDL Hospitality Trust (CDREIT) - UOB Kay Hian 2017-10-30: 3QFY17 Results Of CDREIT Below CDL HOSPITALITY TRUSTS J85.SI

CDL Hospitality Trust (CDREIT) - 3QFY17 Results Of CDREIT Below

  • Results of CDREIT were below expectations. 
  • Maintain HOLD on CDREIT with a raised target of S$1.70 (from S$1.62). 
  • Maintain sector OVERWEIGHT.

CDL Hospitality Trust (CDREIT SP/HOLD/S$1.63/Target: S$1.70) 

Results below expectations. 

  • Maintain HOLD with a raised target price of S$1.70 (from S$1.62), based on two-stage DDM (required rate of return: 7.4% and terminal growth rate: 2%). 
  • 3Q17 DPU was down 3.0% yoy. Both 3Q17 gross revenue and NPI saw respective increases of 20.7% and 15.9% yoy, due to inorganic contribution from The Lowry Hotel in Manchester, UK, and Pullman Hotel Munich in Germany, and was helped by robust operating performance from the New Zealand Hotel, as well as modest incremental contribution from the Singapore hotels and Claymore Connect. 
  • However, softer trading performances from its Japan hotels and Maldives resorts, and lower contribution from Hilton Cambridge City Centre (affected by a weakened Sterling pound), partially offset the NPI growth. 9M17 DPU of 6.39 S cents (-4.1% yoy) came in below expectations, forming 68.8% of our full-year estimates.

Turnaround in Singapore room rates despite drop in occupancy. 

  • Singapore hotels saw a 0.8% increase in average daily rate to S$187 despite a 2ppt drop in occupancy. As a result, RevPAR decreased marginally by 1.4% yoy. 
  • Management attributed the dip in RevPAR to increased pricing competition from supply of hotel rooms and cautious sentiment in certain sectors like the Offshore & Marine and Financial sectors, but was offset partially by increased visitor arrivals (mainly from China and India) to Singapore.

Robust performance at New Zealand hotel

  • Robust performance at New Zealand hotel with NPI for 3Q17 increasing by 56.1% yoy, as higher room rates and volume increases in all segments resulted in a 32.1% yoy increase in RevPAR. 
  • The country attracted visitor arrivals of 2.6m (+7.4% yoy) for YTD Sep 2017, driven by increase in airline connectivity and planned international events, its safe international appeal, as well as Chinese arrivals.

Stronger AUD bolstered Australia NP

  • Stronger AUD bolstered Australia NPI by 4.3% yoy for 3Q17, as CDLHT receives fixed rent in local currency.

Resilient UK operations. 

  • Despite the recent terror attacks in the country and temporary closure of Manchester Arena until mid-Sep 17, RevPAR for Hilton Cambridge City Centre remained stable while The Lowry Hotel recorded slight RevPAR improvement of 0.8% for 3Q17.

Continued pressure on Maldives resorts. 

  • Due to price competition amid new supply pressure, and moderating growth in China demand (top source market), Maldives resorts recorded a yoy collective RevPAR (USD) decline of 24.6% in 3Q17 Gearing remained stable at 33.3% in 3Q17 (2Q17: 38.7%), with debt headroom of S$594m. 3Q17 borrowing costs dipped 50bp qoq to reach 1.8% (2Q17: 2.3%). 

Asset enhancement initiatives. 

  • For its Orchard hotel in Singapore, management is renovating the Chinese gourmet restaurant, Hua Ting, and guest rooms in one wing of the hotel, which are expected to be completed by Dec 17 and Apr 18 respectively, and will lead to some disruption and revenue loss in the short term. 
  • Enhancement works are also planned at Dhevanafushi Maldives Luxury Resort and Angsana Velavaru in 2018.

Vikrant Pandey UOB Kay Hian | http://research.uobkayhian.com/ 2017-10-30
UOB Kay Hian SGX Stock Analyst Report HOLD Maintain HOLD 1.70 Up 1.620