CDL Hospitality - UOB Kay Hian 2018-04-30: 1Q18 Singapore Hotels Going Strong

CDL Hospitality (CDREIT SP) - UOB Kay Hian 2018-04-30: 1q18: Singapore Hotels Going Strong CDL HOSPITALITY TRUSTS J85.SI

CDL Hospitality - 1q18: Singapore Hotels Going Strong

  • CDL Hospitality Trusts (CDLHT)’s results are in line with expectations. Despite strong materialisation of 4Q17 supply, CDLHT’s Singapore properties continued to perform moderately well.
  • We foresee a buoyant outlook for Singapore hotels on the back of favourable demand-supply dynamics going forward. Outlook for overseas market appears less upbeat, as CDLHT hotels in Japan and New Zealand grapple with more supply and increased competition.
  • Maintain BUY and target price of S$1.95.


Results in line with expectations. 

  • Maintain BUY and target price of S$1.95, based on two-stage DDM (required rate of return: 7.4% and terminal growth rate: 2.5%). 
  • CDLHT reported 1Q18 DPU of 2.17 S cents, up 7.4% y-o-y. Both 1Q18 gross revenue and NPI saw respective increases of 11.6% and 5.4% y-o-y, due to inorganic contribution from The Lowry Hotel in Manchester, UK, and Pullman Hotel Munich in Germany, but partially offset by softer trading performance (from the Japan Hotels, Maldives Resorts and Hilton Cambridge City Centre), and divestments of Mercure Brisbane and Ibis Brisbane in Jan 18. 
  • Results are in line with expectations, with 1Q18 DPU forming 22.9% of our full-year estimates.


  • Resilient performance by CDLHT Singapore properties, amid strong materialisation of 4Q17 supply. Even with the supply surge registered in 4Q17, CDLHT Singapore properties performed modestly well with RevPAR improving to S$161 (up 0.8% y-o-y), partially supported by the biennial Singapore Air show which took place in Feb 18. F&B also performed stronger.
  • Expect more AEI works for CDLHT Singapore properties. The renovation of guest rooms of its Orchard Hotel’s Orchard wing and the public spaces incorporating the un-refurbished F&B outlets of the hotel, is planned to commence in 2H18. For Grand Copthorne Waterfront Hotel, a phased room refurbishment exercise is also planned for 2H18. Management expects both exercises to continue enhancing overall guest experience and ensure strong positioning of their Singapore hotels amidst an incipient recovery.
  • Singapore hotels to enjoy favourable demand-supply dynamics going forward. According to STB estimates, visitor arrivals is expected to grow by 4% to 18.1m in 2018, on the back of Qantas rebasing its largest transit hub outside of Australia from Dubai to Singapore (from Mar 18), increased air connectivity, a favourable global economic outlook, and a stronger event calendar compared with 2017. Singapore, as the ASEAN Chairman in 2018, will also host many events involving delegates across the year, including the 32nd and 33rd ASEAN summit.
  • Singapore hotel room supply growth is also expected to slow, from a CAGR of 5.5% from 2014-17 to 1.3% from 2017-20. Supply growth will taper starting from 2018 onwards ( < 2.5% p.a.), with an estimated 1,691 net rooms opening this year. The tightened new supply is partly due a lack of hotel sites introduced under the Government Land Sale (GLS) programme since 2014. Most industry players opined that they do not foresee more new supply in the next 3-4 years, due to competing land use (ie residential) and scarcity of land in Singapore.
  • Robust performance at New Zealand hotel to moderate going forward. 1Q18 RevPAR increased by 4.3% y-o-y, largely due to the healthy visitor arrival growth (+7.8% y-o-y for 1Q18). However, management expects growth to moderate due to the high-base effect (from new flight routes and major sporting events boosting demand last year) and upcoming increase in hotel supply to ease the shortage of hotel inventory in the city.
  • Japan hotels seeing more competition. Japan hotel RevPAR declined by 8.9% y-o-y, due to inventories displaced in Jan and Feb 18 (from soft refurbishment of 134 selected guestrooms), as well as lower room rates. Room rates faced pressure from the heavier concentration of more budget-conscious East Asian visitors ( > 80% of 2M18 total arrivals), as well as rising supply (including alternative accommodation). Management expects increased competition in Tokyo’s economy hotel market to moderate room rate growth in the near term.
  • Repositioning of Maldives resorts amid RevPAR decline of 18.8%. Visitor arrivals continued growing strong, supported by European arrivals (on the back of stronger Euro against the USD), increased flight capacity from Europe, Southeast Asia and the Middle East. However, this was still outweighed by new supply growth. 
  • Trading performance of its Maldives resorts was affected by the state of emergency declared from Feb-Mar 18, while Dhevanafushi Maldives Luxury Resort is still affected by the transition.
  • Amidst the rising competition, management has planned refurbishment works for 28 land villas under the Angsana Velavaru (to commence this year) and Dhevanafushi Maldives (to commence in May 18).
  • Gearing may be lowered further to 30%, from the use of proceeds from the divestment of Mercure Brisbane and Ibis Brisbane. 4Q17 gearing stood at 32.6%, with debt headroom of S$644m. 4Q17 borrowing costs also lowered to 2.1% (vs 1.8% in 3Q17)
  • Gearing increased to 33.2% (vs 32.6% in 4Q17). CDLHT also has a debt headroom of S$608m, and borrowing costs of 2.1% (flat q-o-q).


  • We retain our estimates.


  • Maintain BUY and target price of S$1.95. 
  • Our valuation is based on DDM (required return: 7.4% and terminal growth of 2.5%).


  • Positive newsflow on hotel room rates and occupancy, and tourist arrivals.

Vikrant Pandey UOB Kay Hian | Loke Peihao UOB Kay Hian | 2018-04-30
SGX Stock Analyst Report BUY Maintain BUY 1.950 Same 1.950