CDL Hospitality Trusts - DBS Research 2019-01-30: Enticing Growth Outlook


CDL Hospitality Trusts - Enticing Growth Outlook

  • CDLHT’s 4Q18 DPU of 2.77 Scts (-2.1% y-o-y) in line with expectations. 
  • Drag from divestment of two Brisbane hotels and closure of Maldives resort. 
  • RevPAR for Singapore hotels jumped 2.6% y-o-y in 4Q18 with 5.1% y-o-y increase in early January 2019. 
  • Better earnings ahead on the back of recovery in Singapore hospitality market and recent acquisitions. 

Attractive outlook.

  • We maintain our BUY call on CDL HOSPITALITY TRUSTS (SGX:J85, CDLHT) with a Target Price of S$1.85.
  • We believe the projected upturn in the overall Singapore hospitality market, with revenue per available room (RevPAR) to grow by 3-5% p.a. over the next few years should drive CDLHT’s share price higher. This, combined with CDLHT’s recent acquisitions, should result in DPU CAGR of 3% between 2018-2021. Moreover, CDLHT’s yield is based on a 90% payout ratio versus its peers which typically have a 100% payout ratio.

Where We Differ: Should trade at a higher premium to book.

  • Consensus has a lower target price at c. S$1.70. This implies CDLHT’s Singapore portfolio is valued at c.S$700,000 per key, below asking prices for hotels in Singapore which are in excess of S$1m per key.
  • With a potential upturn in the Singapore market over the next three years, this is too conservative in our view. Thus, given the quality of its properties, CDLHT should re-rate closer to our Target Price which implies price per key of c.S$800,000 or 1.2x P/B.

Upside from acquisitions.

  • Going forward, we expect future accretive acquisitions to act as a re-rating catalyst. This follows the recent DPU accretive acquisition of a hotel in Florence.


  • We maintain DCF-based Target Price of S$1.85. With c.16% capital upside, we retain our BUY call.

Key Risks to Our View:

  • Weaker-than-expected demand supply outlook in Singapore. The key risk to our view is a weaker-than-expected demand-supply outlook for the Singapore hospitality market.

WHAT’S NEW - Positioned for a better 2019

Soft end to the year due to impact of divestments and closure of Maldives resort

  • CDLHT delivered 4Q18 DPU of 2.77 Scts which was down 2.1% y-o-y mainly due to the impact of the divestment of CDLHT’s two Brisbane hotels in January 2018 and closure of Dhevanafushi Maldives Luxury Resort to undertake renovations ahead of its rebranding as a Raffles Hotel resort. However, FY18 DPU was marginally up 0.4% to 9.26 Scts which was in line with our expectations but higher than consensus expectations of 9.1 Scts.
  • For 4Q18, due to the assets sales and Maldives resort closure, both revenue and NPI fell 5% y-o-y to S$52.3m and S$38.4m respectively.
  • Nevertheless, CDLHT’s core Singapore operations as well as properties in Germany and Japan reported improved earnings. The newly acquired Hotel Cerretani Florence also made its maiden contribution following its acquisition on 27 November 2018.

Singapore RevPAR up 2.6% and 5.1% y-o-y for 4Q18 and first 27 days of January 2019

  • CDLHT’s Singapore hotels had a strong end to the year after missing investor expectations over the last couple of quarters.
  • 4Q18 NPI increased by 3% y-o-y recovering from 2-3% drop in 2Q18 and 3Q18. The better performance was driven by 2.6% y-o-y increase in revenue per available room (RevPAR) to S$160 (occupancy up 230pts to 85.8% with ADR flat y-o-y at S$186). This compares to 0.3% and 0.9% y-o-y declines in 2Q18 and 3Q18 respectively.
  • 4Q18 performance could have been better if not for the renovations at Orchard Hotel. Excluding Orchard Hotel, 4Q18 RevPAR would have risen 4.3% y-o-y. We understand corporate demand was stable with additional business generated from meetings surrounding the ASEAN Summit.
  • For the first 27 day of January, CDLHT disclosed that RevPAR was up 5.1% y-o-y or slightly above 6% excluding Orchard Hotel. In addition, we understand demand from the corporate sector for 1H19 is looking positive. This bodes well for 3-4% RevPAR growth we have penciled in for FY19.

Higher contribution from Japan and Germany

  • The Japan hotels ended the year on a higher note, with 4Q18 NPI up 35% y-o-y to S$1.3m on the back of a 7.3% y-o-y increase in RevPAR. The strong performance was attributed to easing supply pressures due to regulations restricting AirBnb which had caused 4Q17 RevPAR to fall 4.5% y-o-y. In addition, the property benefited from healthy level of citywide events and concerts in Tokyo. In FY19, CDLHT’s Japan properties should benefit from World Cup Rugby and for FY20 the Summer Olympics.
  • On the back of a strong list of events in Munich, CDLHT’s Pullman Hotel Munich reported 24.2% y-o-y increase in RevPAR which translated to 4Q18 NPI of S$2.7m (+16% y-o-y). For FY19, we understand that a lower number of conference/events will be held in Munich but these events are of a larger scale and may help with the performance of the property.

Softer trend continued for NZ, Maldives and UK operations

  • The normalisation of hotel performance after the strong growth recorded in Auckland over the last 2-3 years continued into 4Q18. In addition, new room supply has hit the market. This resulted in 4Q18 RevPAR for Grand Millennium Auckland reporting a 3.1% y-o-y decline in RevPAR. Combined with a weaker NZD, 4Q18 NPI from New Zealand fell 2% y-o-y. In coming twelve months, CDLHT is hopeful of achieving low single digit improvement in RevPAR.
  • Contribution from the Maldives operations was minimal as expected owing to the closure of Dhevanafushi Maldives Luxury Resort ahead of its opening as Raffles Maldives Meradhoo in 2Q19. 4Q18 NPI for the Maldives portfolio fell 88% y-o-y to S$0.3m.
  • 4Q18 NPI for the UK operations declined by 19% y-o-y to S$3.3m on account of the depreciation of the GBP as well as lower earnings from the Lowry Hotel which was impacted by the absence of a few non-repeat high-rated conference group business and one-off operating and maintenance expenses. However, overall UK 4Q18 RevPAR was up 1.3% y-o-y largely due to stronger RevPAR at Hilton Cambridge City Centre which benefited from stronger group corporate business.

Modest gearing with borrowing costs stable

  • Despite revaluation gains of S$35m, gearing rose to 34.2% from 33.8% in 3Q18 following the acquisition of Hotel Cerretani Florence. Nevertheless, CDLHT remains in a strong position to pursue additional acquisitions.
  • On the back of the higher valuations, NAV per unit also rose to S$1.53 from S$1.49 in the preceding quarter.
  • We understand cap rates for the Australian and NZ properties were stable. The Singapore properties saw a 20bps expansion in cap rates owing to a change in valuer. However, this was offset by 40-50bps decline for the Japanese properties, 25-50bps compression in UK and 25bps compression for Pullman Munich.
  • Overall borrowing cost was stable at 2.4% with the proportion of fixed rate debt dropping to c.62% from c.66%.

Recovery in DPU expected but moderating expectations for Maldives

  • Over the next 3 years we expect CDLHT to deliver DPU CAGR of 3% p.a., led by 3-4% RevPAR improvement for its core Singapore portfolio as well as a boost from the recent expansion into Florence and upturn in Japan.
  • Nevertheless, we have trimmed our FY19-20F DPU by 1- 2% as we have now assumed a more conservative ramp up profile for the new Raffles resort given the still intense competition from new resorts.

Maintain BUY with Target Price of S$1.85

  • With 4Q18 results in line with expectations and CDLHT reporting a healthy start to 2019, we maintain our BUY call and Target Price of S$1.85.
  • We continue to recommend investors position themselves in CDLHT to the expected multi-year upturn in the Singapore hospitality market which is further supplemented with expected growth from its Japanese operations and expansion into Italy.
  • With gearing only at c.34%, this also presents further upside risk to our earnings estimates should CDLHT pursue further acquisitions in Europe.

Mervin SONG CFA DBS Group Research | Derek TAN DBS Research | https://www.dbsvickers.com/ 2019-01-30
SGX Stock Analyst Report BUY MAINTAIN BUY 1.850 SAME 1.850