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


CDL Hospitality Trusts - SG RevPAR-Recovery Play

Still our Top Pick

  • 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%).

SG recovery underway, paring back RevPAR growth

  • 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.

A weak quarter for overseas assets

  • 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.

Supply outlook benign, supporting recovery

Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2020-01-31
SGX Stock Analyst Report BUY MAINTAIN BUY 1.75 DOWN 1.800