CDL Hospitality Trusts - OCBC Investment 2018-11-01: Happy Surprise On Halloween


CDL Hospitality Trusts - Happy Surprise On Halloween

  • 3Q below expectations…
  • But strong RevPAR growth in Oct.
  • Fair Value increases to S$1.45.

3Q DPU down 4.8% y-o-y

  • CDL Hospitality Trusts’ (CDLHT) 3Q18 results were below expectations.
  • 3Q18 revenue dropped 8.8% to S$50.0m while NPI dropped 10.2% to S$36.2m. After including a capital distribution of S$1.8m, 3Q18 DPU (after retention) dropped 4.8% y-o-y to 2.18 S cents to 22.6% of our initial full-year forecast.
  • The decline in NPI was mainly due to the absence of contribution from three properties – Mercure Brisbane and Ibis Brisbane (both divested in Jan 2018) and Dhevanafushi Maldives Luxury Resort, which has been closed since Jun 2018 for renovations (expected to complete by year-end). SG, UK and NZ also saw lower NPI y-o-y.
  • On the other hand, we saw higher NPI from Pullman Hotel Munich, Japan Hotels, and Claymore Connect.

SG RevPAR down 0.3% in 3Q18, but up 7.2% first 29 days of Oct

  • Singapore’s contribution was affected by Orchard Hotel’s AEI and 3Q18 SG RevPAR dropped 0.3% y-o-y to S$165. Excluding Orchard Hotel, RevPAR growth would have been +1.3% y-o-y which is in-line with our expectations.
  • Surprisingly, SG RevPAR for the first 29 days of Oct was up 7.2% y-o-y. Management indicated that the high RevPAR growth was on the back of strong leisure and corporate demand. For instance, some hotels in their portfolio reached close to 100% occupancy during the period.

An early Christmas?

  • Given the strong RevPAR recorded in Oct, we revise our expectations upwards for 4Q18 and FY19 accordingly. This is in contrast to FEHT’s portfolio, for which we expect a 4Q18 RevPAR performance closer to its 9M18 run-rate of ~3%.
  • Looking ahead, the rebranded Raffles Maldives Meradhoo Resort (formerly Dhevanafushi) is scheduled to open by the start of 1Q19, and we see CDLHT’s SG-heavy portfolio as being well-poised to ride the hospitality up-cycle.
  • As we are projecting S$2m in capital distributions next year (significantly lower compared to the S$5.7m already announced in 9M18), FY19F DPU is expected to grow 5.0% y-o-y despite a projected 9.3% increase in NPI. After adjustments including raising our terminal growth rate from 1.5% to 2.0%, our fair value increases from S$1.42 to S$1.45.
  • We find CDLHT reasonably fairly priced as at 31 Oct’s close – CDLHT is trading at a 6.4% FY19F yield, slightly below its 5 year mean.
  • Given that CDLHT’s gearing stands at a relatively low 33.8% as at 30 Sept 2018, we note that accretive acquisitions remain an upside risk to our forecasts. Maintain HOLD on CDLHT.

Deborah Ong OCBC Investment Research | 2018-11-01
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.45 UP 1.420