CDL Hospitality Trusts - RHB Invest 2017-12-19: A Good Proxy To Rebound In Visitor Demand

CDL Hospitality Trusts - RHB Invest 2017-12-19: A Good Proxy To Rebound In Visitor Demand CDL HOSPITALITY TRUSTS J85.SI

CDL Hospitality Trusts - A Good Proxy To Rebound In Visitor Demand

  • Singapore Hotels saw some signs of stabilisation with room rates increasing for the first time in five years. Management noticed some improvement in corporate demand too. 
  • Meanwhile, New Zealand Hotels continue to be the key DPU driver with a stellar 56% YoY NPI increase in 3Q17. 
  • Asset enhancements are planned for its Maldives hotels and Orchard hotel next year to enhance competitiveness. 
  • CDL Hospitality Trusts (CDLHT) remains the most liquid proxy to the expected turn-around in the SG Hospitality sector. Maintain BUY with a SGD1.70 TP (2% upside).

SG Hotels’ room rates showing its first YoY increase in five years. 

  • In 3Q17, the average room rates (ARR) rose a marginal 1% YoY. This is the first YoY increase after 19 consecutive quarters of decline indicating the tail-end of room rate decline. Overall RevPAR however was lower 1.4% YoY as occupancy declined 2ppts. 
  • Management sounded cautiously optimistic that while the environment still remains competitive, hoteliers are now starting to hold up the rates and potentially look to increase. About 1,532 new rooms (2.4% of inventory) are set to enter in 4Q, which is likely to put some pressure. However the supply tapers off in 2018 with only 1,139 rooms set to open. 
  • We are forecasting a 3-7% increase in RevPAR for 2018.

A good proxy to the corporate demand recovery. 

  • Management noted that corporate demand is starting to see some improvement, in line with recent positive economic data. There has also been an increase in enquiries for meetings and events. The rates paid by corporate clients (~40-50% of total demand) are typically 10-20% higher and a pick-up in corporate demand should boost bottomline.

Overseas markets – New Zealand (NZ) the shining star, weakness in Maldives and Japan. 

  • New Zealand (NZ) continues to be the bright spot with 3Q RevPAR surging 32% YoY on the back of favourable demand supply dynamics. Management remains confident that NZ Hotels performance would continue to remain robust in 2018. 
  • On the flip side, Maldives RevPAR declined 25% YoY due to higher competition and weak Chinese demand. 
  • RevPAR for Japan hotels also registered a 2.5% YoY decline due to higher competition in Tokyo’s economy hotel market.

Asset enhancements to better. 

  • Refurbishment works are being planned for the guest rooms at one wing of the Orchard Hotel in mid-Dec 2017 and expected to be completed by Apr 2018. During this period, the hotel is expected to face some disruption with rooms being closed. 
  • Additionally, both the Maldives hotels would undergo enhancements in 2018 to strengthen its positioning.

Maintain BUY with a TP SGD1.70. 

  • CDL Hospitality Trusts (CDLHT) remains one of the liquid proxy to the expected turnaround in SG Hotels RevPAR next year. The signs of improvement in corporate demand should provide further impetus to hotel demand. 
  • It is our Preferred Pick among hospitality REITs. The stock currently offers FY18F-19F yields of 6.3% and 6.6% respectively, which we deem as attractive.

Vijay Natarajan RHB Invest | 2017-12-19
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 1.700 Same 1.700