CDL Hospitality Trusts - CGS-CIMB Research 2019-02-08: A proxy to the recovering RevPAR


CDL Hospitality Trusts - A proxy to the recovering RevPAR

  • We expect CDL Hospitality Trusts to deliver stronger 2.5% DPU growth in 2019 versus +0.4% in 2018 due to completion of refurbishments and acquisition in 2018. 
  • Maintain ADD at a higher DDM-based Target Price as we reduce our beta from 0.9 to 0.85 to be more in line with its historical 1-year adjusted beta. 
  • The recovery of industry RevPAR and expectations of lesser rate hikes would bode well for CDL Hospitality Trusts which is a bellwether for the hospitality REITs.   

2018 growth was affected by closure and divestments

  • To recap, CDL HOSPITALITY TRUSTS (SGX:J85)’s FY18 results came in above our expectations due to higher-than-expected capital distribution from the sale of Mercure and Ibis Brisbane in Jan 2018 as well as lower-than-expected interest expense. Revenue and NPI declined 1.2% and 3.8% y-o-y respectively, in line with our 2018 full year forecast.
  • The weaker revenue and NPI was mainly a result of the full closure of Dhevanafushi Maldives Luxury Resort (DMLR) and the absence of revenue contribution from Mercure Brisbane and Ibis Brisbane which were divested on 11 Jan 2018. It was also due to the weaker performance from New Zealand to a lesser extent due to higher base effect last year driven by sports event and weaker NZ$ against S$.
  • Singapore hotels performed better on the back of stronger RevPAR (+0.6% to S$160). RevPAR would have been much stronger if exclude Orchard Hotel which is undergoing refurbishments. Orchard Hotel is one of the largest contributor to its Singapore’s hotel NPI at 23% in FY17.

Expects stronger growth in 2019

  • We expect the trust to deliver stronger DPU growth in FY19F, driven by the anticipated recovery of the hospitality sector in Singapore, the resumption of DPU growth at Orchard Hotel and the reopening of its DMLR Resort in 2Q2019.
  • CDL Hospitality Trusts has completed the acquisition of Hotel Cerretani Florence, MGallery by Sofitel, a 4-star hotel in Florence on 27 Nov 2018. Full year contribution from this acquisition in FY19 will also help to boost DPU growth.

Maintain ADD

  • We reduce our beta from 0.90 to 0.85 to be more in line with its historical 1-year adjusted beta. This raises our DDM-based Target Price to S$1.80 which still implies a DPU yield of 5.4% versus office and retail’s large caps’ yield of ~5%.
  • The recovery of Singapore’s RevPAR and expectations of lesser rate hikes should bode well for CDL Hospitality Trusts which is a bellwether for Singapore’s hospitality stocks.
  • Maintain ADD on the stock.
  • Rerating catalysts include better RevPAR performance while downside risks include weaker-than-expected performance from DMLR.

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | 2019-02-08
SGX Stock Analyst Report ADD MAINTAIN ADD 1.80 UP 1.640