CFA Society Singapore
SINGAPORE (Nov 1): RHB Research and OCBC Investment Research are pleasantly surprised after CDL Hospitality Trusts (CDLHT) reported Singapore RevPAR (Revenue per available room) for the first 29 days of Oct was up 7.2% y-o-y.
Management says the high RevPAR growth was on the back of strong leisure and corporate demand with some of its hotels reaching close to 100% occupancy.
As a result, management remains optimistic on 2019 outlook and is guiding for the industry’s RevPAR growth at 3-5%.
RHB and OCBC also expect better contribution from Maldives portfolio in the coming years as the rebranded Raffles Maldives Meradhoo Resort is scheduled to open by the start of 1Q19.
In 3Q18, the performance of CDLHT’s two Maldives resorts was impacted by a combination of factors including higher room supply, slowdown in Chinese visitors and political changes.
Geographically, RHB says German hotel’s 3Q18 RevPAR rose 3.9% y-o-y, and outlook remains positive supported by healthy pipeline of events.
Japan RevPAR had also turned around, with supply fears alleviated by a reduction in Airbnb listings after recent regulation changes.
Performance of UK and Australia hotels are expected to remain steady, although the income is still subjected to see slight impact from currency volatility.
Back on home turf, CDLHT’s Singapore-heavy portfolio is well poised to ride the hospitality upcycle, says OCBC.
In 3Q18, the republic’s contribution was affected by Orchard Hotel’s asset enhancement works and 3Q18 Singapore’s RevPAR dropped 0.3% y-o-y to $165. Excluding Orchard Hotel, RevPAR growth would have come in 1.3% higher than expected.
But as the research house is projecting $2 million in capital distributions next year -- significantly lower compared to the $5.7 million already announced in 9M18, FY19F DPU is expected to grow 5.0% y-o-y despite a projected 9.3% increase in NPI.
Gearing remained modest at 33%, giving $300 million headroom for acquisitions.
Management says the European hotel market remains attractive, due to relatively high yield spreads while Singapore, which is OCBC’s preferred market, the recent surge in capital values has made yield-accretive acquisitions difficult.
“We find CDLHT reasonably fairly priced as at 31 Oct’s close – CDLHT is trading at a 6.4% FY19F yield, slightly below its 5 year mean,” says OCBC which is maintaining its “hold”.
“Despite recent overseas acquisitions, CDLHT remains one of the most liquid proxies that offer exposure to the recovery in Singapore’s hospitality market. CDLHT offers FY18F-19F dividend yields of 6.3% and 6.7%,” says RHB which is sticking with its “buy” call.
Year to date, units of CDLHT are down 14.8% to $1.44 giving it a FY19F yield of 6.5% based on OCBC's estimates.