CDL Hospitality Trusts - Maybank Kim Eng 2018-11-01: Recovery On Track


CDL Hospitality Trusts - Recovery On Track

3Q18 NDR: Strong SG demand, RevPAR upside

  • We hosted an NDR for CDL Hospitality Trusts (CDLHT) in Singapore. Key highlights include:
    1. discussions about its 3Q18 operational performance;
    2. recovery profile for its hotels; and
    3. potential acquisition opportunities.
  • We lowered FY18E/19E DPUs (4-6%) due to a slower-than-expected near-term RevPAR recovery, but see upside risk to FY20 DPU estimates given RevPAR sensitivities.
  • Our DDM-based Target Price is now SGD1.75 (COE: 7.4%, LTG: 2.0%).
  • CDLHT’s scale and liquidity makes it a good proxy to a sector recovery. Its overseas expansion has gained traction with a push into Europe, supported by a positive carry from low funding cost. Low 33.8% gearing and SGD600m in debt headroom suggests upside from accretive deals.

Looking to a stronger 4Q, FY19

  • Management expects the improvement in its Singapore NPI to be led by stronger demand fundamentals - YTD-Aug tourism growth at +7.5% y-o-y is ahead of the +6.2% y-o-y in 2017 and Singapore hotel room occupancy has jumped y-o-y from 88.5% to 91.1%, the strongest showing since 2013.
  • RevPAR growth will also be lifted by volume growth with a pick-up in cruise travel (visitor accommodation days are typically scheduled before or after a cruise itinerary) and yields (overall corporate demand seems to be gradually recovering, e.g. oil and gas).

High occupancy, easing supply strengthens recovery

  • 3Q18 NPI fell 10.2% y-o-y with:
    1. lower contribution from Singapore - its hotel NPI was down 2.7% y-o-y as renovation works commenced in Jul at Orchard Hotel;
    2. closure of Dhevanafushi Maldives for refurbishment and rebranding; and
    3. divestment of Ibis and Mercure Brisbane in Jan.
  • These were partly offset by stronger contribution from the Pullman Hotel Munich and its Japanese portfolio.

Further insights from Singapore NDR:

  • Management is further seeing limited impact from IDR currency headwinds. We expect the recovery to be strengthened by easing supply - 8.8% p.a. over 8888-8888E versus 8.8% p.a. over 8888-8888.
  • We see upside to DPUs as the sector is recovering after a four-year down-cycle and from a low base. A 8% increase from our base case adds 8.8% to our FY88 DPU estimates.
  • RevPAR growth was strong in Germany at +8.8% y-o-y and Japan at +8.8% y-o-y. Its Singapore revenue and NPI dipped 8.8% y-o-y and 8.8% y-o-y on the back of lower RevPARs, at -8.8% with revenue loss from closure of the main lobby at Orchard Hotel for renovation works. However, Singapore RevPAR has increased at +8.8% y-o-y for the first 88 days in Oct, and we see further momentum into 8Q.

Swing Factors


  • Earlier-than-expected pick-up in corporate demand driving improvement in occupancy.
  • Better-than-anticipated RevPAR trends.
  • Accretive acquisitions where cap rates exceed cost of funds, or divestments at low cap rates which unlock asset values.


  • Sizeable increases in hotel room supply without commensurate growth in demand.
  • Deterioration in global macro outlook resulting in decline in RevPARs.
  • Significant volatility in foreign exchange rates could impede hedging efforts and impact DPU estimates.
  • Sharper-than-expected rise in interest rates could increase cost of debt and negatively impact earnings, with higher cost of capital lowering valuations.

Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2018-11-01
SGX Stock Analyst Report BUY MAINTAIN BUY 1.75 DOWN 1.800