SINGAPORE (Nov 1): DBS Group Research says CDL Hospitality Trusts’ Singapore operations continue to be impacted by an oversupply of hotel rooms, but believes the REIT offers “outstanding” long-term value.

The research house is keeping CDLHT at “buy” with a lower price target of $1.59, from $1.65 previously.

CDLHT’s revenue per available room (RevPAR) dropped 7.2% to $168 in 3Q, compared to a decline of 3% in the average market. And there is more bad news to come in the near term. In the first 26 days of Oct, RevPAR fell 13.4% y-o-y.

But DBS lead analyst Mervin Song believes CDLHT is the “cheapest REIT to ride the eventual upturn” in Singapore’s hospitality market.

“[CDLHT] offers compelling long-term value given its Singapore portfolio trades on a heavily discounted implied price per key,” says Song in a Monday report.

“In addition, [CDLHT] offers patient investors an attractive 6.8% yield (based on 90% payout ratio) ahead of the eventual upturn,” he adds. DBS says it now expects the Singapore hospitality market to recover in 2018.

Song expects CDLHT to benefit from the completion of asset enhancement initiatives (AEIs) at Grand Copthorne Waterfront and M Hotel next year. The two properties have historically contributed close to 40% of CDLHT’s Singapore operations.

Outside of Singapore, CDLHT’s New Zealand operations should shore up the REIT’s performance going forward.

CDLHT’s Auckland hotel saw RevPAR increase 9.5% y-o-y on the back of robust tourist arrivals. The REIT’s New Zealand net property income (NPI) surged 22% y-o-y.

In addition, Song says that with debt headroom of close to $382 million, the REIT is “well placed to pursue acquisitions to mitigate any weakness in its core Singapore market.”

As at 3.42pm, units of CDL Hospitality Trusts are trading 0.4% higher at $1.35.

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