CDL Hospitality Trusts & Ascott Residence Trust - CGS-CIMB Research 2020-01-31: A Good Ending

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CDL HOSPITALITY TRUSTS (SGX:J85) ASCOTT RESIDENCE TRUST (SGX:HMN)

CDL Hospitality Trusts & Ascott Residence Trust - A Good Ending

• CDL Hospitality Trusts’s FY19 DPU came in within our forecast but Ascott Residence Trust’s was above.
• Both REITs saw strong RevPAR in 4QFY19, in line with the industry growth.
• We reiterate our Neutral call on REITs with Hospitality as our least preferred.

CDLHT FY19 DPU in line; ART FY19 DPU better than expected

• CDL HOSPITALITY TRUSTS (SGX:J85)’s FY19 DPU of 9.02 Scts (-2.6% y-o-y) was in line at 101% of our estimate. Revenue dipped 2.4% y-o-y and NPI decreased 3.3% y-o-y due to
  • renovation works at Orchard Hotel
  • absence of major biennial events and ASEAN meetings which occurred in 2018
  • closure of Raffles Maldives resorts for rebranding (reopened in Sep 2019) and
  • lower contribution from some overseas markets, partially affected by weaker forex.
• See CDL Hospitality Trusts Dividend History; CDL Hospitality Trusts Announcements.
• ASCOTT RESIDENCE TRUST (SGX:HMN)’s FY19 DPU of 7.61 Scts (+6.3% y-o-y) was above our and consensus forecasts due to higher-than-expected one-off partial distribution from divestment gain. FY19 master lease revenue was down mainly due to divestment of Ascott Raffles Place while management contract revenue improved 1% y-o-y due to acquisition of Citadines Connect Sydney Airport. Management contract revenue improved 5% y-o-y on stronger RevPAU of +5% y-o-y. Overall revenue was flat while gross profit was up 6% y-o-y.
• See Ascott Trust Dividend History; Ascott Trust Announcements.

Singapore hospitality delivered strong RevPAR in 4QFY19

• Both CDL Hospitality Trusts and Ascott Residence Trust reported stronger Singapore RevPAU of +1.6% and 7.8% in FY19.
• In 4QFY19, CDL Hospitality Trusts reported +5.1% RevPAR (partly driven by renovation completion of Orchard Hotel) while Ascott Residence Trust recorded +7.3% RevPAU y-o-y, in line with the industry RevPAR performance of +3.6% and +9.1% in Oct and Nov respectively.
• CDL Hospitality Trusts and Ascott Residence Trust were negatively impacted by weaker forex (NZ dollar, Aussie dollar, British pound) and keener competition from New Zealand, Japan, China and the US.

Coronavirus impact is immaterial for now

• Impact from the Wuhan Coronavirus is immaterial for now although there have been some booking cancellations since the outbreak, according to both CDL Hospitality Trusts and Ascott Residence Trust.
• Ascott Residence Trust has a diversified portfolio and serviced residence guests skews towards corporates while Chinese guests account for < 10% of CDL Hospitality Trusts’s Singapore revenue. CDL Hospitality Trusts continued to see strong RevPAR growth of 4% y-o-y in the first 28 days of Jan while Ascott Residence Trust saw some Chinese guests extending their stay in Singapore.

Maintain Neutral on REIT sector with hospitality the least preferred

• While the sector outlook is more positive in 2020 vs. 2019 due to the return of biennial events and lower supply, this may be offset by weaker tourist arrivals due to the Coronavirus outbreak and pose downside risk to our RevPAR forecast of 2-3% in 2020. During the SARS outbreak in 2003, tourist arrivals fell by 19% y-o-y while industry RevPAR declined by 17% y-o-y.
• Both REITs still have large divestment gains and could use this to offset any income weakness stemming from the Coronavirus.
• Hospitality remains our least preferred subsector. Volatile demand aside, we think the industry is facing structural changes as tourists have more accommodation options.
• See CDL Hospitality Trusts Target Price; Ascott Trust Target Price.

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2020-01-31

SGX Stock Analyst Report ADD MAINTAIN ADD 1.830 SAME 1.830

HOLD MAINTAIN HOLD 1.34 SAME 1.34