CDL Hospitality Trusts - UOB Kay Hian 2019-10-31: 3Q19 Singapore Hotels Seeing The Light


CDL Hospitality Trusts - 3Q19 Singapore Hotels Seeing The Light

  • CDL Hospitality Trusts’s 9M19 DPU came in slightly below expectations, representing 71% of our full-year estimates.
  • SG RevPAR grew 4.9% y-o-y (on back of stronger leisure, diversion of tourism flows from HK). 2020 may see SG hotels yield-up, supported by tighter biennial event calendar and benign supply growth.
  • Australia, New Zealand, and UK contributions were affected by softer currencies, while Japan saw weakness due to weaker demand-supply dynamics.
  • Maintain BUY with lower S$2.05 target price (previous: S$2.06)


Results slightly below expectations.


Singapore portfolio RevPAR grew 4.9% y-o-y,

  • on the back of improved ARR (+4.3ppt y-o-y, +4.2ppt q-o-q) and 91.4% occupancy (+0.7ppt y-o-y, +7.3ppt q-o-q). SG portfolio improved, on back of stronger leisure travel (est. to account for 50% of the business), potential diversion of tourism flows to Singapore as a result of the unrest in Hong Kong, and additional business generated by F1 SG Grand Prix (which saw the second-highest 3-day attendance in the race’s 12-year history).
  • With a better base business, SG hotels were able to yield up during high demand periods. Limited future supply should continue to lend support to a gradual sector recovery.
  • As a pre-cursor to 4Q19, SG RevPAR increased 0.2% y-o-y for the first 27 days of Oct 19. Anecdotally, management also noted that they are contracting at higher prices for some 2020 corporate RFPs (while some accounts remain price sensitive).

SG hotels to see improved demand-supply dynamics, led by more inaugural events in 2020.

  • Visitor arrivals grew to 12.9m (+1.9% y-o-y) for 8M19, as a result of growth from China (+5.1%) and developed markets like the US (12.3%), Japan (7.3%), although this was partly offset by lower visitation from regional markets (Thailand, India, Sri Lanka).
  • On the corporate front, biennial 2020 will see Singapore hosting a number of inaugural events, like International Trademark Association’s 142nd Annual meeting (est. 8,000 attendees), 103rd Lions Clubs International Convention (est. 20,000 foreign attendees).
  • Exciting tourism infrastructure plans are also underway, which will help to provide a favourable environment for medium-to long-term growth. Some of these infrastructure plans include Changi Airport (T5), Mandai Nature Precinct (new Bird Park and Rainforest Park to open by 2020/21 respectively), Jurong Lake District, Orchard Rd, Greater Southern Waterfront, Marina Bay Sands, Resort World Sentosa, and Sentosa-Brani Masterplan.

Benign supply growth in Singapore to lend support.

  • Forward supply (1.3% CAGR from end-2018 to 2022) has moderated as compared with previous years’ 2014-17 (5.5% CAGR). Some 1,703 net rooms (c.2.5% of existing room stock) will be added this year (2019). Of these, 430 new rooms are in the city center. Management expects the trading environment to remain competitive, as newer entrants continue to build their base.

Maldives market remains challenged due to new supply.

  • In addition, Angsana Velavaru has also been undergoing enhancement works (addition of a main public pool, progressive renovation of its 79 beach villas), which also disrupted its revenue. Raffles Maldives Meradhoo (reopened on 22 Sep 19) is still going through gestation period with wholesale partners visiting the resorts, before it is actively promoted and introduced into the market.

Australia, New Zealand and the UK portfolio saw weakness.

  • Australia portfolio contributions were affected by a weaker AUD, although its lease structure continues to provide fixed rent in local currency. New Zealand portfolio RevPAR declined 7.7% y-o-y, due to the increase in new supply, and a weaker events calendar which intensified competition during the low season, as well as a weakened NZD. Both UK hotels saw flattish RevPAR, and contributions continue to be weighed by Brexit uncertainties and a weaker GBP.
  • Lowry Hotel recorded a RevPAR gain due to demand from Cricket World Cup and entertainment events, but overall contributions were still dragged by F&B (closure of restaurant and bar for refurbishment). Hilton Cambridge saw weaker RevPAR, as a result of increased room supply in Cambridge.

Japan RevPAR (-15.4% yoy) declined,

  • due to a surge in supply and softer tourism demand. South Korean visitors decreased 36.3% in 3Q19, due to tensions between the two countries. Japanese consumer sentiment is expected to continue to be impacted by the twice-delayed consumption tax hike (from 8%) to 10%, from 1 Oct 19.

Appetite for more acquisitions.

  • Gearing increased marginally to 36.3% (+1.1ppt q-o-q), and CDL Hospitality Trusts still has ample debt headroom (S$461m). Management continues to like assets in Singapore (cap rates: 3-3.5%), and Europe (ie cap rates of 3-5%, depending on the city).

Asset enhancement initiatives (AEIs) on the cards.

  • At Copthorne King’s Hotel, pipeworks and reburbishment of guest rooms are being carried out in phases (to ensure hotel remains operational). Angsana Velavaru completed construction of a new main public pool, and the full renovation of 79 land villas (24 of which will incorporate new infinity pools) are expected to be completed at year-end (ahead of the peak travel season).


Earnings trimmed for 2019-21F.

  • We trim our 2019-21F DPU forecasts by c.2%, as a result of lower overseas contributions (from weaker foreign currencies)



  • Positive newsflow on hotel room rates and occupancy, and tourist arrivals.

Loke Peihao UOB Kay Hian Research | Jonathan KOH UOB Kay Hian | https://research.uobkayhian.com/ 2019-10-31
SGX Stock Analyst Report BUY MAINTAIN BUY 2.05 DOWN 2.060