CDL Hospitality Trust - CIMB Research 2018-01-26: First Quarterly RevPAR Improvement Since 3Q14

CDL HOSPITALITY TRUSTS J85.SI

CDL Hospitality Trust - First Quarterly RevPAR Improvement Since 3Q14

CDL Hospitality Trust (CDREIT)'s FY17 DPU of 9.22 Scts (-4.3% y-o-y) was above consensus and our expectations, at 109% of our full-year forecast. 4Q17 DPU of 2.83 Scts (-5.7% y-o-y) was at 34%.
CDREIT’s Singapore hotel portfolio underscored our argument for an earlier- and stronger-than-anticipated recovery by posting 1.1% y-o-y gain in RevPAR for 4Q17. We expect a 5% y-o-y improvement in CDREIT’s Singapore RevPAR in FY18F.
Gearing improved to 32.6% at end-17, providing CDREIT with ample dry powder for acquisitions. Target markets could include Europe, Japan and Australia.
We believe that the cyclical recovery in hotels could potentially lead to a multi-year upswing – we urge investors to remain invested in CDREIT. Reiterate ADD.

Excluding the effects of the rights issue, 4Q17 DPU would have improved by 5.7%, lifted by inorganic contributions from The Lowry Hotel and Pullman Hotel. As we had postulated in “Singapore hotels – here comes the boom” dated 02 Jan 2017, Singapore registered 1.1% y-o-y improvement in RevPAR, the first since 3Q14.
Overall growth was partially offset by weaker New Zealand, Japan, Maldives and Hilton Cambridge, UK.

Given that c.60% of the new rooms in 2017 would only come on-stream in 4Q17, market consensus viewed that the Singapore market would only bottom in 4Q17. However, we anticipated an earlier recovery; CDREIT’s Singapore hotel portfolio underscored this by posting a 1.1% y-o-y improvement in RevPAR in the quarter.
Occupancy dipped -0.1% pt y-o-y to 83.6% while ADR (average daily rate) improved 1.2% y-o-y.

Supported by only a 1.2% new supply in 2018, the return of large biennial events for an even-year (we also note that Singapore will chair the 32nd ASEAN summit) and ramp-up of Changi Terminal 4, we project CDREIT’s Singapore hotels to achieve a 5% y-o-y improvement in RevPAR in FY18F (led by ADR increase).
We note that this is the upper-end of management’s guidance. While its Singapore hotels recorded a 5.5% RevPAR decline in the first 24 days of Jan, we expect this to be neutralised by month-end.

Maldives’ 4Q17/FY17 RevPAR decreased 13.2%/14.7% y-o-y given significant increase in new supply. Jumierah Dhevanafushi was also impacted by the on-going rebranding exercise (completed by end-18).
Japan’s 4Q17/FY17 RevPAR declined 4.5%/4.6% y-o-y due to increasing competition from Tokyo’s economy hotel market.
Hilton Cambridge’s 4Q17 RevPAR fell 8.5% due to increased competition in the Cambridge market, while contributions from newly-acquired The Lowry Hotel were stable.

CDREIT completed the divestment of its Brisbane properties for A$77m or 5.3% exit yield on 11 Jan 2018. Proceeds would be used to pare down borrowings, while part of it could also be used to top up distributions to mitigate the effects of the divestment.
Gearing improved to 32.6% as at end-4Q17 (3Q17:33.3%). CDREIT has ample debt headroom to fund acquisitions. Target markets could include Europe, Japan and Australia.

We raise our FY18F-19F DPU by 1.1-1.8% on lower finance costs, and introduce our FY20F estimates. We also raise our DDM-Target Price (to S$1.92) on lower COE of 8.8% (previously 9.2%).
With minimal supply further out, we believe that the cyclical recovery in hotels could potentially lead to a multi-year upswing. Hence, we advise investors to remain invested in CDREIT, the bellwether of the Singapore hospitality sector.
Downside risks include slower-than-expected recovery in the Singapore market and unfavourable acquisitions.

YEO Zhi Bin CIMB Research | LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2018-01-26

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