CFA Society Singapore
SINGAPORE (Oct 30): CDL Hospitality Trust (CDLHT) on Friday announced its 3Q17 results, posting a 3% decrease in distribution per stapled security (DPSS) to 2.29 cents compared to 2.36 cents in the previous year.
The decrease in DPSS was due to the effect of right issue which was completed in August. Excluding this, the trust would have posted a 12.3% increase in DPSS to 2.74 cents.
The trust’s revenue saw a 20.7% increase to $54.8 million and a 15.9% increase in net property income (NPI) to $40.4 million, mainly due to inorganic contributions from The Lowry Hotel in Manchester and Pullman Hotel Munich, as well as a 56.1% y-o-y growth in its NPI from New Zealand.
Hence, OCBC has maintained its “hold” call on CDLHT with a higher target price of $1.555.
The trust’s Singapore Hotel RevPAR decreased 1.4% y-o-y in 3Q17, despite Singapore NPI increasing 2.3%, due to a 33.3% increase in Claymore Connect’s NPI distribution.
The trust also reported a 0.8% y-o-y increase in average daily rate (ADR) to $187 for the first time since 3Q12, while occupancy decreased 0.2% y-oy.
According to Horwath in the trust’s presentation, the Singapore hotel room supply is expected to grow 3.9% in 2017 and 1.7% in 2018
In a Monday report, analyst Deborah Ong says, “While we think this may put a slight damper on the RevPAR rebound we expect in 1H18, we note that the management has seen signs of local corporate demand stabilising with more enquiries regarding the use of function rooms for events and activities.”
The analyst projects that contributions from the Lowry Hotel and Pullman Hotel Munich will bolster the trust’s DPU growth in FY18, but is less certain on the strength of the hospitality rebound in 1H18 as 1,500 rooms are forecasted to open in 4Q17.
“We adjust our nominal growth rate of dividends in mature state from 1.1% to 1.5%, as we believe that growth prospects have improved with stabilisation of the Singapore market as well as CDLHT’s exposure to a few faster-growing geographies,” says Ong.
Concurrently, CIMB is reiterating its “hold” rating on CDLHT with a higher target price of $1.62.
In a Friday report, analyst Yeo Zhi Bin says, “With demand continuing to grow (visitor arrivals increased 4% y-o-y to 11.7 million for 8M17), we reiterate that the Singapore market’s RevPAR could register improvements come 2H18F.”
The trust’s properties in Japan recorded a 2.5% y-o-y decline in RevPAR due to increasing competition among Tokyo’s economy hotels though demand continues to be robust.
Meanwhile, Maldives posted a 24.6% y-o-y decrease in RevPAR due to price competition amidst new supply and a decrease in Chinese demand.
In addition, the trust has planned asset enhancement initiatives (AEI) for Orchard Hotel, Angsana Velavaru and a Raffles resort.
Post-completion of the rights issue, gearing in 3Q17 improved y-o-y to 33.3%, while all-in cost of debt decreased q-o-q to 1.8%.
“We expect cost of debt to creep up to 2.1% once the REIT refinances the acquisition of bridge facilities,” says Yeo.
The analyst believes that the Singapore hospitality recovery has already been priced in.
On the other hand, RHB is maintaining its “buy” call on CDLHT with a target price of $1.70.
As the trust posts its first increase in ADR for several quarters and is set to open new rooms in 4Q17, the research house is forecasting a 3-7% increase in RevPAR for 2018.
Moreover, the trust’s management noted that corporate demand is starting to see some improvement in line with the recent positive economic data, while there has also been an increase in inquires for meetings and events.
In a Monday report, analyst Vijay Natarajan says, “The rates paid by corporate clients (~40-50% of total demand) are typically 10-20% higher and a pick-up in corporate demand should boost bottomline.”
The trust’s management also remains confident that its New Zealand hotels will continue to show robust performance in 2018.
“CDLHT remains one of the liquid proxy to the expected turnaround in Singapore Hotels’ RevPAR next year. The signs of improvement in corporate demand should provide further impetus to hotel demand. It is our Preferred Pick among hospitality REITs,” says Natarajan.
The analyst also deems the counter’s FY18 and FY19 dividend yields of 6.4% and 6.7% respectively as attractive.
As at 12.40pm, units in CDLHT are trading at $1.64 or 1.1 time FY18 book.