CDL Hospitality Trusts - Maybank Kim Eng 2020-01-31: SG RevPAR-Recovery Play

CDL HOSPITALITY TRUSTS (SGX:J85)

CDL Hospitality Trusts - SG RevPAR-Recovery Play

CDL Hospitality Trusts (SGX:J85) maintained DPU at SGD2.77cts for 4Q19, which was in line with consensus/ slightly behind our estimate. Recovery of its Singapore hotels gained momentum due to higher occupancy and as RevPAR rose 5.1% y-o-y, even as its overseas assets recorded weaker results.
We pare back RevPAR growth to 3% y-o-y for 2020-21E, but we see its recovery gaining traction in 2020 due to stronger corporate demand. Recovery will also be supported by a constructive supply outlook and DPU visibility from earlier investments in Europe.

Further deals are supported by low 35.4% gearing and > SGD520m in debt headroom.
CDL Hospitality Trusts remains our top hospitality REIT pick offering 18% total return upside to our DDM-based SGD1.75 Target Price (COE: 7.3%, LTG: 2.0%).

Revenue and NPI for its Singapore hotels rose 5.1% y-o-y and 5.6% y-o-y, driven by higher occupancy. This rose y-o-y from 85.8% to 87.2%, helped by higher corporate demand, which pushed room rates up 3.3% y-o-y and RevPAR by +5.1% y-o-y, ahead of a 4.9% y-o-y improvement in 3Q19.
We see traction on RevPAR growth due to a stronger corporate event calendar with the return of biennial events in 2020, but have pencilled in a slower 3% y-o-y RevPAR growth (from 5% y-o-y) given possible cancellations in 1H20 due to the coronavirus outbreak.

NPIs decreased in:
1. New Zealand and Australia (by -3.0% y-o-y and -5.0% y-o-y) largely due to weaker currencies;
2. Germany (-31.2% y-o-y, -27.8% q-o-q) with an absence of trade fairs, but expected to turn around in 2H20; and
3. Japan (-17.3% y-o-y) as RevPAR declined 14.4% y-o-y as political tension between Japan and South Korea intensified.
Contribution rose from its Italy hotel, acquired end-2018, with its RevPAR improving 2.6% y-o-y. NPI for its UK properties was flat, but rising supply had prompted AEIs in 4Q19.
Management eyes further acquisitions in Singapore given favourable supply-demand dynamics, and in Europe due to low funding costs.

We expect recovery in Singapore RevPARs to be supported by easing supply, at 0.8% CAGR from 2020-2023, vs 5.5% growth pa over 2014-17. We see DPU upside to our base case of 2-3% RevPAR growth for 2020-21 as the sector is recovering after the longest-ever down-cycle that lasted five years, and due to a low base.
A 1% increase in RevPAR assumption from our base case adds 0.6% to our FY20 DPU estimates.
See CDL Hospitality Trusts Share Price; CDL Hospitality Trusts Target Price; CDL Hospitality Trusts Analyst Reports; CDL Hospitality Trusts Dividend History; CDL Hospitality Trusts Announcements; CDL Hospitality Trusts Latest News.

Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2020-01-31

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