CDL Hospitality Trusts - UOB Kay Hian 2019-06-11: AEIs Put Singapore Portfolio On Stronger Footing To Benefit From Supply-Led Recovery


CDL Hospitality Trusts - AEIs Put Singapore Portfolio On Stronger Footing To Benefit From Supply-Led Recovery

  • In the coming quarters, CDL HOSPITALITY TRUSTS (SGX:J85) is poised to see earnings improve on the back of enhanced contributions from Orchard Hotel and Raffles Maldives Meradhoo. This also comes on the back of a supply-led Singapore hotel recovery, which is expected to see room CAGR taper off to 1.3% from end-18 to 2022 (2014-18: 4% CAGR).
  • Maintain BUY with a higher target price of S$2.06 (previously S$1.99).


Rejuvenation of Orchard Hotel (16% of portfolio valuation).

  • In 1Q19, Orchard Hotel had 8.6% of its room inventory closed for renovations (in Orchard Wing). Some 260 bedrooms will undergo phased refurbishment which is expected to complete in Jun 19, and another 65 Club Floor rooms will complete renovations in 3Q19. The significant modernisation of room products will help to enhance guest experience, the hotel’s competitive edge, and pricing power (by S$10-15/room-night).
  • Since most corporate customers are locked in a typical one-year request-for-proposal (RFPs, next season in Jul/Aug 19), the average daily rate (ADR) improvement may only flow through in the coming quarters.
  • In 1Q19, Orchard Hotel also completed a major facelift of all meeting facilities, as well as the Grand Ballroom (one of only four hotels in Singapore with a ballroom that can accommodate > 1,000 guests), strengthening its competitive edge in the MICE space.


Other Singapore hotels are also being evaluated for AEI opportunities,

  • Other Singapore hotels are also being evaluated for AEI opportunities, according to CDL HOSPITALITY TRUSTS (SGX:J85) management. Most hotels will typically refurbish their rooms (change of carpets, furniture, etc) every 8-10 years, and public areas (design of the lobby) every 15-20 years, based on industry channel checks.
  • The refurbishment projects in-progress are expected to give CDL Hospitality Trusts's portfolio a competitive advantage in the coming years, positioning them for recovery in the Singapore hotel sector. In the immediate term, these AEIs also serve as a defence in terms of market-positioning, against some of the newer hotels (Intercontinental Singapore Robertson Quay, Sofitel Singapore City Centre, Courtyard Marriot at Novena and Andaz Singapore).

Re-opening of Raffles Maldives Meradhoo to boost earnings.

  • As a recap, Dhevanafushi Maldives Luxury Resort was closed from Jun 18 for major renovations and will be rebranded as Raffles Maldives Meradhoo”(with elevated product offerings in high-end luxury segment). Refurbishment works are well advanced. Land villas will be soft-opened in 2Q19, while over-water villas will open later this year.
  • Raffles Maldives Meradhoo will be the first flagship Raffles Hotels & Resorts property in Maldives, which will also benefit from the strong distribution network of AccorHotels (operating ~4,500 hotels in 100 countries). AccorHotel’s strength in European distribution may also help the resort gain traction with European visitors with longer ALOS of 1-2 weeks (vs previous Chinese/and Middle Eastern tourists with ALOS of a few days). When fully opened, the asset may need 1+ years before it can be fully ramped up to stable occupancy in excess of 70% and ADR of about US$1,200 (vs US$900+ under previous operator).

AEI at Lowry Hotel in the UK.

  • Renovation works have commenced for the lobby and public areas. The Presidential Suite has also been recently renovated (completed in Oct 18).

Supply-led recovery for Singapore hotels.

  • Supply CAGR is expected to decelerate to 1.3% from end-18 to 2022 (2014-18: 4%). The tightened new supply is partly due to a lack of hotel sites introduced under the Government Land Sale (GLS) programme since 2014. The subsequent re-introduction of hotel sites at Club Street (390 rooms) and Marina View (540 rooms) in 2H18 GLS also signals government consensus with our view that supply shortage will be acute in the coming years.

Japan hotels (3% of portfolio valuation) to benefit from positive demand-supply dynamics.

  • Regulatory crackdown on Airbnb listings has curbed overall supply increases (despite growing limited-service hotel supply in Tokyo).
  • In 1Q19, tourist arrivals in Japan increased 5.7% yoy.
  • Major sporting events, such as the 2019 Rugby World Cup, Tokyo 2020 Olympics and Paralympics, and the development of integrated resorts are likely to spur future tourism demand (and demand for room nights).


  • Contributions from yield-accretive acquisitions.
  • Increased contributions from newly refurbished properties.

Jonathan KOH CFA UOB Kay Hian Research | Peihao LOKE UOB Kay Hian | 2019-06-11
SGX Stock Analyst Report BUY MAINTAIN BUY 1.990 SAME 1.990