CDL Hospitality Trusts - CGS-CIMB Research 2019-01-30: Looking Forward To A Stronger FY19F


CDL Hospitality Trusts - Looking Forward To A Stronger FY19F

  • CDL Hospitality Trusts' FY18 DPU came in 6% above our expectations due to higher-than-expected capital distribution from the sale of Mercure and Ibis Brisbane.
  • FY18 NPI was weaker y-o-y due to disposals and refurbishments which offset better performance from Singapore.
  • Maintain Add with a higher Target Price of S$1.64. We expect a better FY19F, driven by a recovery in Singapore RevPAR.

FY18 results review

  • CDL HOSPITALITY TRUSTS (SGX:J85)'s FY18 net property income (NPI) declined 3.8% y-o-y, while DPU increased 0.4% to 9.26 Scts which was above expectations due to higher-than-expected capital distribution from the sale of Mercure and Ibis Brisbane.
  • FY18 NPI was dragged down by Maldives (-64.1% y-o-y), Australia (-32% y-o-y) and New Zealand (-8.2% y-o-y). Singapore operations reported an improvement of 0.4% in NPI on the back of stronger revenue per available room (RevPAR, +0.6%) due to stronger occupancy and average room rate.
  • Excluding Orchard Hotel, which is undergoing refurbishment, Singapore RevPar would have increased ~6%. This offset the inorganic contribution from newly-acquired Hotel Cerretani Florence of which the acquisition was completed on 27 Nov 2018.

More details on country performances

  • The weaker FY18 NPI from the Maldives was due to the closure of Dhevanafushi Maldives Luxury Resort (DMLR) from 1 Jun to rebrand it. Australia NPI declined due to the divestment of Mercure Brisbane and Ibis Brisbane in Jan 2017 and the weaker A$. New Zealand was weaker due to the absence of sporting events vs. 1HFY17, a weaker NZ$ and increased competition in 4Q.
  • On the positive side, Japan reported positive NPI in FY18 as many accommodation listings in Tokyo were temporarily suspended since Jun due to new regulations. This alleviated some supply concerns.
  • Germany’s NPI grew substantially mainly due to the acquisition of Pullman Hotel Munich on 14 Jul 2017.

Expect a stronger 2019F

  • We expect its RevPAR in Singapore to see improvements going forward, driven by the lower supply and encouraging tourist arrivals in Singapore.
  • CDL Hospitality Trusts should see a stronger 2H19 performance as Orchard Hotel completes its refurbishment while the repositioned Raffles Maldives Meradhoo Resort (RMMR) starts operating in 2Q19. Management expects two years of gestation period for RMMR.

Maintain ADD

  • We raise our FY19F DPU forecast by 2.3% mainly to factor in higher capital distribution from the divestment of Ibis and Mercure Brisbane and lower interest expense. Accordingly, our DDM-based Target Price increases slightly to S$1.64.
  • CDL Hospitality Trusts remains our pick for 2019 due to its recovery story.
  • Downside risks could come from weaker-than-expected sector recovery and DMLR performance in 2019F, while potential re-rating catalysts include higher-than-expected capital distribution and accretive acquisitions.

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | 2019-01-30
SGX Stock Analyst Report ADD MAINTAIN ADD 1.64 UP 1.630