CDL Hospitality Trusts - OCBC Investment 2019-01-30: Wait For A Better Entry Point

CDL HOSPITALITY TRUSTS (SGX:J85)

CDL Hospitality Trusts - Wait For A Better Entry Point

CDL HOSPITALITY TRUSTS (SGX:J85)'s 4Q18 results were within expectations. 4Q18 NPI dropped 5.4% y-o-y to S$38.4m, pulled down by a lack of contribution from the two divestments in Australia and the closing of Dhevanafushi Maldives Luxury Resort (DMLR) for renovations. DMLR is currently undergoing pre-opening preparation for its relaunch as “Raffles Maldives Meradhoo” in 2Q19. 4Q18 DPU dropped 2.1% y-o-y to 2.77 S cents.
On a full-year basis, CDL Hospitality Trusts’ FY18 DPU increased 0.4% y-o-y to 9.26 S cents or 104% of our full-year forecast. The difference with our forecast was due to S$13.0m in capital distributions made in FY18 (vs. S$5.7m in FY17), including S$7.3m made in 4Q18. This compares with our assumed amount of S$7.5m for FY18.
Excluding capital distributions, FY18’s distributable income of S$98.6m met 99% of our initial full-year forecast, which we consider within expectations.

In terms of operating metrics, CDL Hospitality Trusts’ Singapore RevPAR increased 2.6% y-o-y in 4Q18 as the portfolio saw demand from Chinese and Indian leisure travelers, stable corporate demand was stable, and additional business from the ASEAN Summit.
Excluding Orchard Hotel (which saw revenue loss due to renovations), CDL Hospitality Trusts’ Singapore RevPAR increased by 4.3% y-o-y in 4Q18. In addition, the REIT manger disclosed that CDL Hospitality Trusts’ Singapore RevPAR increased by 5.1% y-o-y for the first 27 days of Jan 2019. Excluding Orchard Hotel, we estimate that this figure is around +6% y-o-y.
The renovations of the meeting facilities and Grand Ballroom at Orchard Hotel are expected to complete in 1Q19 while furbishment of the rooms in the hotel are expected to complete in 2Q19. Heavy disruption at Orchard Hotel is expected especially for 1Q19 due to the sound.

For 2019, while we are excited on the positive SG RevPAR growth we expect to see for the full-year (e.g. 3-5% range), we are worried on the likely drag in 1Q19 from the closure of DMLR as well as the asset enhancement initiatives at Orchard Hotel. After adjustments, our fair value increases from S$1.45 to S$1.56 as our cost of equity drops from 8.0% to 7.5%.
As at 29 Jan’s close, CDL Hospitality Trusts is trading at 5.8% FY19F dividend yield.
Beyond 1Q19, we anticipate
1. the opening of the rebranded Raffles Maldives Meradhoo Resort in early 2Q19, and
2. improved contributions from Orchard Hotel post refurbishment.
Post-renovations, Orchard Hotel will be one of only four hotels in Singapore with a ballroom that can accommodate 1K or more guests. For the reasons mentioned earlier, we believe 1Q19 will look soft on a y-o-y basis and currently see an opportunity to sell into strength based on CDL Hospitality Trusts’ share price as at 29 Jan 2019.
We maintain HOLD on CDL Hospitality Trusts.

Deborah Ong OCBC Investment Research | https://www.iocbc.com/ 2019-01-30

SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.56 UP 1.450