CDL Hospitality Trusts - RHB Invest 2020-01-31: Near-term Uncertainty From Wuhan Coronavirus

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CDL HOSPITALITY TRUSTS (SGX:J85)

CDL Hospitality Trusts - Near-term Uncertainty From Wuhan Coronavirus

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• CDL Hospitality Trusts (SGX:J85)'s 4Q results were in line. We expect strong near-term headwinds for the Singapore hospitality sector due to the outbreak of Wuhan coronavirus with sharp slowdown in Chinese visitors expected. Amidst an uncertain near-term outlook, investors are likely to stay on the side lines from hospitality-related stocks.
• Overall impact to CDL Hospitality Trusts’s portfolio, however, is mitigated by its diversified exposure and master lease structures.

China is the biggest visitor arrival market with c.19% of SG visitor arrival.

• Thus the imposition of travel ban on overseas tour groups from China and broader travel restrictions are likely to hit hard on hospitality industry players. Management however highlighted that so far it has only seen limited cancellations and wherever possible, it has been trying to reschedule the bookings.
• SG hotel RevPAR for first 28 days in January rose 4.1% y-o-y, but this largely does not reflect the latest market conditions. Hotel F&B business (which accounts for ~30% of revenue) is also likely to see a sharp near-term hit.
• While China market accounts for only about 10% of its total SG revenue, we expect competition from other industry players to put pressure on its hotels RevPAR.
• Overall, we have lowered our RevPAR growth assumptions for 2020 to 0-2% from 3-5%.

Overseas portfolio remains a mixed bag.

• Performance of CDL Hospitality Trusts’s Maldives resorts is also expected to be impacted from the expected sharp slowdown in Chinese leisure travellers with breakeven likely expected only in 2021.
• Market environment remains competitive in New Zealand (12% of 4Q19 NPI) and the UK (9%) on higher hotel supply limiting RevPAR growth.
• Demand for Japan and Germany hotels is expected to see a healthy pick-up in 2H20 on key events while Australia and Italy hotels are likely to remain steady.

More acquisitions likely in the near term.

• CDL Hospitality Trusts’s proposed acquisition of W Hotel Singapore Sentosa (WSS) and divestment of Novotel Singapore Clarke Quay (NCQ) have received unitholder approval with these transactions expected to be completed by early 2Q20.
• Management noted that it will continue to use capital top-up from divestment gains to offset the DPU loss from the acquisition. Post transaction, gearing remains modest at 35.3%, presenting ~SGD250m in debt headroom (assuming 40% levels).
• Management noted that it will remain active on the acquisition front, with Europe and Singapore (potentially M Social from sponsor) remaining its key target markets.

DPU and Target Price adjustments.

• We lower our FY20F-21F DPU by 3-4%, factoring in lower RevPAR growth and increase our COE assumptions by 30bps to 7.5%, factoring in higher risk due to the virus outbreak.
• 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.

Vijay Natarajan RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-01-31

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