CDL Hospitality Trusts - Maybank Kim Eng 2019-07-31: Slow Quarter, Recovery Intact

CDL HOSPITALITY TRUSTS (SGX:J85)

CDL Hospitality Trusts - Slow Quarter, Recovery Intact

CDL HOSPITALITY TRUSTS (SGX:J85)’s 2Q19 DPU at SGD2.07cts (-3.3% y-o-y) was below our/consensus estimates on slower visitor growth and softer corporate event calendar. Its Singapore hotel occupancy however remains tight at 84.2%, with RevPARs having likely bottomed out.
We decreased DPUs (-1%) on the back of a lower Singapore RevPAR growth guidance for FY19. Our investment thesis is unchanged with RevPAR recovery supported by a constructive supply outlook and DPU visibility from earlier investments in Europe. Further deals could be supported by low 35.2% gearing and > SGD500m in debt headroom.

CDL Hospitality Trusts remains our top hospitality REIT pick with 16% total return upside to our DDM-based SGD1.80 Target Price (COE: 7.4%, LTG: 2.0%).

Revenue and NPI for its Singapore hotel fell 4.3% y-o-y and 2.8% y-o-y, in line with slower visitor growth (+1.5% y-o-y 5MTD vs +7.0% in 2018) due to a softer 2019 MICE calendar and room displacement (ongoing AEI at Orchard Hotel, ancillary works at M Hotel and Copthorne King’s).
RevPAR declined 1.7% y-o-y (was -2.4% y-o-y in 1Q19) with slightly better occupancy, up from 83.5% to 84.2%. Excluding its out-of-order room inventory, RevPAR rose 1.3% y-o-y, stronger than the +0.4% y-o-y in 1Q19.
CDL Hospitality Trusts's RevPAR for the first 28 days in Jul increased 4.1% y-o-y and management is expecting positive RevPAR growth into 2H, from a guidance of +1-3% y-o-y previously.

NPIs increased in:
1. Germany, up 62% y-o-y as RevPAR for the Pullman Hotel In Munich (6.5% of its AUM and 9.1% of total NPI) increased 9.6% y-o-y on the back of a strong trade events calendar; and
2. the UK, up 10.8% y-o-y as RevPAR rose 1.6% y-o-y (management attributed this to a one-off corporate booking billed and unrealised).
The contribution from its Italy hotel acquired at end-2018 rose due to RevPAR growth of5.1% y-o-y. Management continues to see upside from favourable yield-spreads in Europe supporting potential acquisition growth.

We expect the recovery in Singapore to be driven by easing supply of 1.3% p.a. over 2018-22E versus 5.5% growth p.a. over 2014-2017. We see upside to CDL Hospitality Trusts's DPUs as the sector is recovering after a four-year down-cycle and from a low base.
A 1% increase in RevPAR assumption from our base case adds 1.3% to our FY20 DPU estimates.

Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-07-31

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