CDL Hospitality Trusts - Maybank Kim Eng 2020-11-01: Easing Not Easy

CDL HOSPITALITY TRUSTS (SGX:J85)

CDL Hospitality Trusts - Easing Not Easy

CDL Hospitality Trusts (SGX:J85)’s 3Q20 NPI, down 57.4% y-o-y, rose 49.4% q-o-q, with a reopening of its UK and Italy hotels, and transient demand for isolation business in Singapore and New Zealand, set to ease in 1Q21. While RevPARs have fallen 23-84% y-o-y in 9M20, demand recovery into FY21 remains weak with a re-imposition of lockdowns in Europe.
We maintain our estimates and DDM-based S$0.95 Target Price (COE: 8.5%, LTG: 2.0%) for CDL Hospitality Trusts.

We prefer Ascott Residence Trust (SGX:HMN) (BUY, Target Price S$1.05, see report: Ascott Residence Trust - Maybank Kim Eng 2020-11-01: Long On Long-Stays) for its long-stay assets and upside from capital distributions amid slower DPU growth, and Far East Hospitality Trust (SGX:Q5T) (BUY, Target Price S$0.60, see report: Far East Hospitality Trust - Maybank Kim Eng 2020-11-01: Transient Support), for its Singapore-focused AUM and master lease contributions.

CDL Hospitality Trusts's occupancy excluding W Hotel rose 2.6ppts y-o-y to 90.2% with extended demand from government agencies for dedicated isolation facilities and from foreign workers impacted by border closures. As such, RevPAR fell 60.9% y-o-y to S$64 from a 61.5% y-o-y decline in ADR.
Revenue and NPI for CDL Hospitality Trusts's Singapore hotels fell 39.2% y-o-y and 58.1% y-o-y in 3Q20, in line with our estimates. The W Hotel has seen good traction from staycation demand, and management expects to raise ADR (by 20-25%) from Dec, although we think (near term) upside and occupancies will be capped by safe distancing rules.

CDL Hospitality Trusts's overseas hotels were weaker, and NPIs decreased in:
1. Japan, with borders closed and its Tokyo hotels initially excluded from the domestic ‘Go To Travel’ tourism campaign,
2. the UK, which reopened following mandatory closures in 2Q20, and
3. Germany and Italy, as impairment charges (S$2.4m) against rent receivables continued to be recognised.
NPI for its Australian hotels (-3.5% y-o-y) was largely cushioned by a fixed rent structure from its master leases, while it rose 70.5% y-o-y in New Zealand as the government’s managed isolation business was extended.

CDL Hospitality Trusts's leverage has improved to 36.1% (from 37.1%) with interest cover healthy at 2.9x and weighted cost of debt at 1.8% (from 1.9%). The divestment of Novotel Brisbane at S$61.4m should further its balance sheet and boost the S$809m debt headroom (at 50% limit), but near term deals are unlikely we think, given wide differences in buyer-seller expectations.
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/ 2020-11-01

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