No Signs Of Recovery YTD
CDL Hospitality Trusts’ 3Q14/9M14 DPU dropped 1.1%/2.4% to 2.61/7.86 cents respectively. We assume coverage with a NEUTRAL and DDMderived SGD1.76 TP (from SGD1.63), a 3.5% upside from its current share price. With headwinds facing both the demand and supply side of the tourism industry not abating, we see limited growth prospects over the next two years for this stock.
- Results in line, 9M14’s distribution per unit (DPU) at 73% of our forecast. CDL Hospitality Trusts posted 11.9%/11.3% YoY rise in 3Q14/9M14 revenues to SGD40.1m/SGD121.7m respectively, aided by its Maldives resort acquisitions. DPU dropped 1.1% to 2.61 cents (3Q14) and 2.4% to 7.86 cents (9M14), partly on weaker Chinese tourist arrivals to Singapore, the Claymore Link mall’s ongoing refurbishments and the Maldives’ Jumeirah Dhevanafushi resort’s operating expenses not matched by its topline. Management earlier attributed this on seasonality, as 2Q/3Q was the resorts weakest quarters, with >70% of revenue contribution coming in 1Q/4Q on higher-yielding tourists from China, Europe and Russia. The trust’s YTD Singapore hotels revenue per available room (RevPAR) fell 1.6% YoY to SGD188, as the corporate and meetings business remained affected by tight travel budgets and the drop in Chinese tourists post China’s “forced shopping” ban in Oct 2013.
- Tourism outlook unlikely to turn around in 2014. For the first 21 days of October, RevPAR for Singapore hotels decreased by 3.5%, vis-à-vis the same period in 2013, despite the 2014 Women’s Tennis Association Championships being held here. Along Orchard Road, Shangri-La Hotels and Resorts opened the 502-room Hotel Jen Orchardgateway on 15 Sep with an introductory room rate of SGD250/night. Thus, we remain wary of the near-term competition of CDL Hospitality Trusts’ Orchard Hotel.
- Eyeing the Maldives. We expect the Maldives portfolio, ~10% of total net property income (NPI), to drive the major bulk of the trust’s 4Q14 DPU. Industry room inventory will probably continue to grow in Singapore with another 447 rooms slated for opening by end-2014. In 2015, an estimated 3,229 rooms are expected to open, further increasing room supply by 5.7% vis-à-vis 2014. The new room supply is likely to perpetuate the competitive environment going into 2015. We forecast 1% DPU CAGR over 2013-2016. We assume coverage with a NEUTRAL call and a DDM-derived SGD1.76 TP (from SGD1.63).