CDL Hospitality Trusts - RHB Invest 2019-05-02: Soft Quarter Hit By Asset Enhancements; BUY


CDL Hospitality Trusts - Soft Quarter Hit By Asset Enhancements; BUY

  • Keep BUY with a revised SGD1.77 Target Price from SGD1.80, 11% upside plus 6% yield. Our Target Price is at the high end of consensus.
  • CDL HOSPITALITY TRUSTS (SGX:J85) remains our hospitality sector Top Pick. Despite a slightly weak 1Q, we believe remains the best proxy to the sector’s ongoing recovery. With most hotels’ asset enhancement initiatives (AEI) nearing completion, a better performance is expected from 3Q19 with favourable demand-supply dynamics providing some tailwind.
  • Key risk: lower demand pickup on weak global economic growth.

Singapore – slightly moderated revenue per available room (RevPAR) growth guidance.

  • Management guided on 2019 RevPAR growth at 1-3% from 3-5% due to slightly weak corporate demand pickup. RevPAR for its Singapore hotels were lower at 2.4% y-o-y mainly on extensive AEI at Orchard Hotel, excluding which RevPAR rose 0.4% y-o-y.
  • 2Q RevPAR is also likely to stay flattish due to the ongoing phased refurbishment of 260 rooms at the hotel.
  • Management noted that ongoing elections across key Singapore visitor markets might have had some impact on weak 1H demand. A pickup is expected from 2H19, with AEI completion and limited new hotel supply.

Maldives – some improvement in trading conditions

  • Demand has picked up with an increase in inbound flights and the Government stepping up its efforts in marketing. This was reflected in 18% y-o-y RevPAR growth for Angsana Velavaru (AV) in 1Q19. Some refurbishment works are planned for AV in the near term but it is not expected to cause any major disruption to hotel operations.
  • The rebranded Raffles Maldives Meradhoo will be opened in phases from 2Q19, but performance is expected to remain sub-optimal during the gestation period (~1 year).

Other markets – Germany remains a bright spot

  • Germany remains a bright spot supported by strong Munich events calendar, with healthy RevPAR growth expected for Pullman Hotel Munich. The newly-acquired Hotel Cerretani Florence registered a healthy 24% y-o-y RevPAR growth due to adoption of a volume strategy.
  • New Zealand RevPAR is expected to remain flattish to slightly lower after exceptional growth in the last few years.
  • While hotel supply in Tokyo (economy segment) is expected to increase, the impact is likely to be mitigated by an increase in tourist arrivals and reduced Airbnb listings.
  • UK hotel performances are likely to remain weak due to the Brexit uncertainty and rising wage environment, which are impacting operating costs.

More European hotel acquisitions likely in the near term.

  • Gearing remains modest at 35.2%.
  • Management still sees more opportunities in the European market due to attractive yield spreads (NPI yield-borrowing cost).

DPU adjustments.

  • We cut our FY19F-21F DPU 2-3% after factoring in a slightly weaker-than-expected market outlook.

Vijay Natarajan RHB Securities Research | 2019-05-02
SGX Stock Analyst Report BUY MAINTAIN BUY 1.77 DOWN 1.800