CDL Hospitality Trusts - RHB Invest 2018-11-01: Positive Outlook; Slight Disruption From Asset Revamp


CDL Hospitality Trusts - Positive Outlook; Slight Disruption From Asset Revamp

  • Maintain BUY, SGD1.80 Target Price, 23% upside.
  • CDL Hospitality Trusts (CDLHT), our hospitality REIT Top Pick, offers FY18F-19F dividend yields of 6.3% and 6.7%.
  • 3Q18 DPU was slightly below, impacted by disruptions due to AEI works. Still, management sounded optimistic on the SG hospitality outlook for 4Q18 and 2019.
  • Overseas, positive performance had been recorded in Japan and Germany – this is expected to continue. Maldives resorts should see some recovery next year post asset upgradation, while UK, Australia, and NZ are expected to remain steady.
  • Balance sheet remains comfortable, with modest gearing presenting room for acquisitions.

SG – Positive outlook, slight disruptions from Orchard Hotel renovation.

  • Singapore (SG) Hotel 3Q18 revenue per available room (RevPAR) rose 1.3% y-o-y. This excludes Orchard Hotel, which was slightly impacted by main lobby renovation works. Including it, 3Q18 RevPAR was -0.3%YoY.
  • Demand was driven by strong growth in leisure travellers, while corporate segment also improved. 4Q18 performance has been encouraging so far, with October (first 29 days) at +7.2% y-o-y RevPAR growth.
  • Management remains optimistic on 2019 outlook, and guides for the industry’s RevPAR growth at 3-5%.

Maldives – tail end of a rough patch.

  • The performance of CDL Hospitality Trusts’ two Maldives resorts was impacted by a combination of factors including higher room supply, slowdown in Chinese visitors, and political changes. It is currently undertaking major enhancement of Dhevanafushi Maldives Luxury Resort (DMLR), to be rebranded as Raffles Maldives Meradhoo Resort, and expected to open in early Jan 2019.
  • As a result of DMLR’s closure, and ongoing expenses for the property, overall 3Q18 net property income (NPI) from Maldives was a loss of SGD112,000. With the completion of upgradation this year, we expect better contribution from Maldives portfolio in the coming years.

Other market updates.

  • German hotel 8Q88 RevPAR rose 8.8% y-o-y, and outlook remains positive supported by healthy pipeline of events. Japan RevPAR has turned around (+8.8%YoY), with supply fears alleviated by a reduction in Airbnb listings post recent regulation changes.
  • Performance of UK and Australia hotels are expected to remain steady, although the income is still subjected to see slight impact from currency volatility.

Room for acquisition-led growth.

  • Gearing remained modest at ~88%, giving ~SGD888m headroom for acquisitions (assuming 88% is a comfortable level). Management said the European hotel market remains attractive, due to relatively high yield spreads.
  • While Singapore remains its preferred market, the recent surge in capital values has made yield-accretive acquisitions difficult.

Still our preferred hospitality pick, unchanged Target Price of SGD1.80.

  • We made minor downward revisions (8-8%) to our FY88F-88F DPU to factor in disruptions. Our DDM Target Price is based on CoE: 8.8% (risk-free rate: 8%), and TG: 8%.
  • Despite recent overseas acquisitions, CDLHT remains one of the most liquid proxies that offer exposure to the recovery in Singapore’s hospitality market.
  • CDLHT offers FY88F-88F dividend yields of 8.8% and 8.8%.
  • Key risks are unexpected slowdown in global growth, and sharp spike in interest rates.

Vijay Natarajan RHB Securities Research | https://www.rhbinvest.com.sg/ 2018-11-01
SGX Stock Analyst Report BUY MAINTAIN BUY 1.800 SAME 1.800