CDL Hospitality Trust - CIMB Research 2018-04-30: 1Q18 First Take ~ SG Improves Slightly; AEIs Unveiled

CDL HOSPITALITY TRUSTS J85.SI

CDL Hospitality Trust - 1q18 First Take ~ Sg Improves Slightly; Aeis Unveiled

CDL Hospitality Trust (CDREIT)'s 1Q18 DPU of 2.17 Scts (+7.4% y-o-y) was in line with our and consensus expectations at 22% of our full-year forecast. CDREIT recorded 0.8% y-o-y increase in SG RevPAR.
We think the reason why FEHT’s SG RevPAR performance outpaced CDREIT’s is because of the base effect. FEHT’s RevPAR slide was higher than CDREIT’s in 1Q17.
Maintain ADD with CDREIT a proxy for the recovering SG hotel market.

CDL Hospitality Trust (CDREIT)'s 1Q18 DPU grew 7.4% y-o-y on the back of inorganic contribution from The Lowry Hotel in UK (acquired on 4 May 2017) and Pullman Hotel Munich (acquired on 14 Jul 2017) as well as improved performance from SG. S
G hotels recorded 0.8% y-o-y improvement in RevPAR while NPI from Claymore Connect jumped 48% y-o-y. This was partially offset by softer trading performance from Japan, Maldives and Hilton Cambridge properties.
Additionally, fixed rental income was lower from the Australian portfolio due to the divestment of Mercure and Ibis Brisbane on 11 Jan 2018.
We note that net finance costs were S$4.7m lower (-43% y-o-y) given savings from lower borrowing costs (the rights issue in Aug 2017 was used to pare down higher interest-bearing debt). Average cost of debt for 1Q18 was 2.1% p.a. (1Q17: 2.4%), with gearing at 33.2%. In addition, CDREIT has distributed S$0.7m of divestments gains (S$5.4m) from Mercure and Ibis Brisbane to mitigate the absence of income.

We observe that CDREIT has, for the third consecutive quarter, pushed rates up (in view of its relatively high occupancy). Accordingly, average room rates (ARR) increased 1.7% y-o-y while occupancy inched down 0.8% pt.
We think the reason why FEHT’s (Add, 0.78%) SG RevPAR performance outpaced CDREIT’s in 1Q18 was partly because of the base effect. CDREIT’s RevPAR dipped 0.8% y-o-y in 1Q17 while FEHT’s decreased by 4.6%.
For the first 26 days of Apr, CDREIT booked a 4.1% y-o-y improvement in RevPAR.

While total visitor arrivals increased in Maldives (revival in demand from Europe), new supply growth counterbalanced demand. Additionally, the transition process of Dhevanafushi affected trading performance. As a result, Maldives posted an 18.8% y-o-y drop in 1Q18 RevPAR. The decline in NPI was partially mitigated by the minimal rent for Angsana Velavaru (US$6m p.a.).
Japan hotels registered an 8.9% decline in 1Q18 RevPAR as the heavy concentration of more budget-conscious East Asian visitors, along with rising supply, led to rate pressure. Japan was also affected by mild refurbishment of guestrooms.
Europe experienced extreme weather conditions in 1Q18. Given this, coupled with the absence of a major biennial event, Pullman Munich recorded a 7.6% RevPAR drop. Hilton Cambridge’s RevPAR decreased 6.5% y-o-y; Lowry booked 6.8% growth.
NZ booked 4.3% growth in 1Q18 RevPAR as the market remained healthy. However, we expect growth to moderate given the high base effect (FY17: +46.3%). NPI contribution in S$ was also marginally lower due to a weaker NZ$.

In SG, the group will renovate guestrooms in Orchard Hotel in 2H18. A phased room refurbishment exercise is also planned for Grand Copthorne Waterfront Hotel in 2H18.
In Maldives, the Dhevanafushi resort will be fully closed from Jun 2018 with a planned reopening in 4Q18 under the ‘Raffles’ brand. Refurbishment is also planned for 28 land villas in Angsana Velavaru in 2018.

Maintain ADD with CDREIT a proxy for the recovering SG market. Our estimates and DDM-based target price (S$1.92) are intact.
We are hosting CDREIT’s post-1Q18 results luncheon for our institutional clients today.

YEO Zhi Bin CIMB Research | LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2018-04-30

SGX Stock Analyst Report ADD Maintain ADD 1.920 Same 1.920