CDL Hospitality Trusts - UOB Kay Hian 2020-04-27: Weathering The COVID-19 Storm


CDL Hospitality Trusts - Weathering The COVID-19 Storm

  • The onset of COVID-19 has resulted in CDL Hospitality Trusts’s overseas hotels temporarily closing (some remain open but with minimal occupancies), while most of its Singapore properties are block-booked for SHN purposes.
  • Some payroll reprieve (60-80% subsidy) is on the way in Apr 20, benefitting HMA hotels the most.
  • Distribution policy is under review pending more visibility from 1H20 results, although its liquidity position (S$104m cash reserves/37.4% net gearing) remains healthy.
  • Maintain BUY with a lower target price of S$1.32.

CDLHT's 1Q20 operational update: COVID-19 impact.

  • At a teleconference call on 24 Apr 20, CDL Hospitality Trusts (SGX:J85)'s management provided operational updates on Singapore/overseas properties, as well as payroll subsidies (60-80% up to a certain cap) from the various governments.

Singapore portfolio RevPAR declined 39.8% y-o-y

  • Singapore portfolio RevPAR declined 39.8% y-o-y, largely due to lower occupancy of 53.9% (-33.4ppt y-o-y, -33.3ppt q-o-q) and marginal decline in ADR.
  • Occupancy decline was mitigated by accommodation demand from foreign workers affected by border closures (eg Malaysia’s border closure from 18 March-12 May) and demand for returnees from overseas serving out their Stay-Home-Notice (SHN) in hotels.

Singapore outlook: To rely on SHN business and potential pent-up demand in 2H20.

  • As a pre-cursor, for the first 22 days of Apr 20, Singapore RevPAR declined by 62.4% from the same period last year (attributed more to lower ADRs). RevPAR calculations take into account SHN hotels on a full-allocation basis (regardless of underlying occupancy), and excludes out-of-order rooms undergoing renovations.
  • Despite the lower ADRs from the SHN business, our channel checks suggest they also incur lower cost of operations by cutting out online travel agents (eg Booking.com), reduced house-keeping (due to social distancing) and less food wastage (from pre-selection of food menu).
  • Novotel SG Clark Quay has also extended operations for an additional three months, as one of the SHN hotels. About 75% of missed events have also been postponed (and not cancelled), which hints at backlog of corporate bookings when the COVID-19 pandemic subsides. Management is also beginning to see the return of Chinese-booking interest for Aug 20, and several events slated for August and onwards (eg Formula 1 in Sep, Asia TV Forum in Dec 20) have not been cancelled.

Maldives properties affected

  • Maldives properties affected by blanket suspension of on-arrival visas, resulting in several resort closures till mid-20. Raffles Maldives Meradhoo also temporarily closed since 1 Apr 20, while Angsana Velavaru will operate at reduced staffing. A new presidential villa at Raffles Meradhoo and refurbishment of remaining land villas at Angsana Velavaru are targeted for completion in mid-20. Angsana Velavaru saw a 31.2% y-o-y decline in 1Q20 RevPAR.

Australia, New Zealand and Japan portfolio saw weakness.

  • Australia NPI contributions were affected by a weaker AUD, although its lease structure continues to provide fixed rent in local currency.
  • New Zealand RevPAR declined 15% y-o-y, due to deterioration of trading environment from the border closure on 19 March and commencement of the country-wide lockdown. Management expects Grand Millennium Auckland to see a sharp downturn in the near term (ie which remains operational), although the lockdown measures will start easing from 27 Apr 20.
  • Japan RevPAR declined 33.6% y-o-y in 1Q20, due to flexible pricing amid reduced international demand. The postponement of the Tokyo 2020 Olympics and entry ban on foreign travelers of most countries will be a dampener this year.

Europe portfolio updates.

  • UK RevPAR declined 27% y-o-y in 1Q20, from diluted corporate demand leading up to the mandated closure of UK hotels on 21 Mar 20 under the country’s lockdown.
  • Germany RevPAR declined 37%, due to fewer events during the quarter, absence of a major biennial trade fair in Jan 20 and occupancy plunge from Mar 20. Italy RevPAR declined 38% y-o-y due to the temporary closures from 13 Mar 20 (till early May-20) under the nationwide lockdown.
  • Management noted that discussions in Europe are now on a gradual loosening of lockdown measures from as early as Jun-Aug 20, but more confidently from Sep 20. In Germany, some shops have started reopening since 20 Apr 20.

Substantial savings from payroll relief (60-80% up to certain cap) from Apr 20 onwards.

  • The flow-through to the portfolio will be more impactful for Hotel Management Agreement (HMA) properties, most of which are overseas.
  • For Singapore, the Jobs Support Scheme (JSS) will subsidise payrolls for 75% of the first S$4,600 covering nine months.
  • For the UK and Germany, government subsidies range around 80% and 60-70% respectively, although there is still uncertainty over any extensions of such programmes.

Gearing remained low at 37.4% (+2.2ppt q-o-q) with enhanced S$747m debt-headroom (raised 50% leverage limit).

  • On balance sheet, CDL Hospitality Trusts has cash reserves of S$104.2m (not including committed revolving credit facility). Liquidity can be improved when the net cash inflows from the divestment of Novotel Singapore Clarke Quay and W Hotel acquisition are completed in mid-Jul 20. Dividend payout is under review pending more visibility from 1H20 results.


Jonathan Koh CFA UOB Kay Hian Research | Loke Peihao UOB Kay Hian | https://research.uobkayhian.com/ 2020-04-27
SGX Stock Analyst Report BUY MAINTAIN BUY 1.32 DOWN 1.340