CDL Hospitality Trusts - UOB Kay Hian 2018-11-01: 3Q18 On The Cusp Of A Singapore-Led Recovery


CDL Hospitality Trusts - 3Q18: On The Cusp Of A Singapore-Led Recovery

  • CDL Hospitality Trust’s (CDREIT)’s 3Q18 DPU came in below expectations, declining 4.8% y-o-y.
  • The Singapore portfolio was dragged by renovations at Orchard Hotel and price competition from new hotel incumbents. Japan and Germany properties saw a stronger quarter, aided by local regulations on AirBnB and a stronger calendar of events respectively. Australia, New Zealand and the UK saw weaker contributions, challenged by weaker currencies and calendar of events.
  • Maintain BUY with a lower target price of S$1.83.


Below expectations.

  • CDL Hospitality Trust’s (CDREIT) 3Q18 gross revenue and NPI declined 8.8% y-o-y and 10.2% y-o-y respectively due to the full closure of Dhevanafushi Maldives Luxury Resort, extensive renovations at Orchard Hotel, lower contributions from other Singapore and New Zealand hotels, as well as absence of contributions from the divested Mercure Brisbane and Ibis Brisbane (on 11 Jan 18). However, these were partially offset by increased contributions from Pullman Hotel Munich, improved operating performance from Japan hotels and incremental contributions from Claymore Connect.
  • 9M18 DPU of 6.49 S cents (+1.6% y-o-y) came in below our expectations, at 70.7% of our full-year estimate.


Singapore portfolio RevPAR (excluding Orchard Hotel) grew 1.3% yoy,

  • supported by a stronger Chinese outbound leisure travel season and major city-wide events, like the 51st ASEAN Ministerial Meeting and F1 Singapore Grand Prix.
  • Including Orchard Hotel, Singapore RevPAR would be marginally lower at -0.3% y-o-y for the quarter. Orchard Hotel was affected by the closure of its main lobby and certain public areas for ongoing refurbishment works. Although fully operational (ie occupancy not affected), Orchard Hotel could not achieve the optimal corporate mix, resulting in revenue loss. 
  • Management also alluded that they could have better managed yield on hindsight, during Jul-Aug 18 when the leisure business was stronger. They noted the need for revenue managers to stay vigilant, especially during shoulder periods (ie when demand is low), and fill rooms with other types of corporate groups.

Singapore hotels to ride on improving demand-supply dynamics.

  • Visitor arrivals reached an all-time high of 17.4m (+6.2% y-o-y) in 2017. In 8M18, arrivals also grew strongly at 7.5% y-o-y to 12.6m. Management guided that they have not seen any ramifications from the trade war affecting demand.
  • On the supply front, pricing competition from new hotels which opened in 4Q17 continued to weigh on trading performance of the Singapore portfolio. New hotel entrants have been pricing their average room rates aggressively during low and shoulder periods throughout the year. However, the benign supply growth forward is expected to support a recovery in the sector.
  • Singapore hotel room inventory is expected to taper to 1.3% CAGR for end-17 to end-20 (vs CAGR of 5.5% for 2014-17).

Maldives market remains challenging due to new supply,

  • although Angsana Velavaru RevPAR still improved 6.5% y-o-y for the quarter.
  • Dhevanafushi Maldives Luxury Resort remained closed for a re-branding to "Raffles" resort, which is targeted to complete by year-end.
  • Management is adopting a “wait-and-see” approach towards recovery, with more connecting flights being added amid more supply coming on stream.

Update on Australia, New Zealand and the UK.

  • The Australia portfolio saw lower rentals due to the divestment of Mercure Brisbane and Ibis Brisbane, as well as the weakened Australian dollar. The New Zealand hotel portfolio's RevPAR declined 6% y-o-y, affected by a weaker NZD, as well as the absence of British and Irish Lions Ruby Tour series which stretched to July last year. The UK RevPAR also declined 1.2% y-o-y due mainly to the absence of a one-off high-rated conference group during the period, lower number of events in Manchester, and the Presidential Suite being taken out for renovation.

Japan and Germany portfolio saw strength.

  • Japan RevPAR gained 5.9% y-o-y, helped by a governmental regulation starting Jun 18 which required AirBnB hosts to obtain a permit to operate, and in the process forcing over 20,000 accommodation listings in Tokyo to be temporarily suspended until properly permitted.
  • Germany RevPAR also grew 3.9% y-o-y, helped by a stronger calendar of city events and increased corporate demand.

Appetite for more acquisitions. Gearing was stable at 33.8% (+0.7ppt q-o-q).

  • On our estimates, CDREIT still has an acquisition headroom of S$295m (assuming target gearing of 40%). Europe has been flagged again as a focus destination for acquisitions as management noted the window of opportunity to make acquisitions amid the current low-yield environment.
  • 3Q18 borrowing costs remained stable at 2.4% (flat q-o-q). The group’s 3Q18 fixed-rate debt remained stable at 66.0% (-0.3ppt q-o-q) and its weighted average debt to maturity is 2.9 years.


Earnings trimmed for 2018-20.

  • We trim our 2018-20 DPU forecasts by 1-4%, mainly factoring in lower ADRs across Singapore hotels as a result of pricing competition against newer hotels for corporate accounts. We expect a better 2019 as Singapore hotels are nearing the cusp of inflexion amid digestion of 4Q17 supply and still strong arrival growth.


Maintain BUY with a lower target of S$1.83

  • (previously S$1.86). Our valuation is based on DDM (required return: 7.6% and terminal growth of 2.5%).


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

Singapore Research UOB Kay Hian Research | https://research.uobkayhian.com/ 2018-11-01
SGX Stock Analyst Report BUY MAINTAIN BUY 1.83 DOWN 1.860