CDL H-Trust – CIMB

Moderating trends

With visitor arrivals moderating and RevPARs still near previous peaks, we see little room for further outperformance. Acquisitions will be pricey while foreign asset additions could dilute positioning and the appeal of its pure local tourism exposure.

DPUs were broadly in line with our forecast but slightly below the street’s; 3Q formed 23% of our full-year forecast and the 9M formed 73%. We trim FY12-14 DPUs for lower RevPAR growth assumptions. This resulted in a lower DDM target price despite lower discount rate of 7.7% (previously 8.1%). Maintain Neutral.

RevPAR down yoy

3Q12 DPU dipped 2% yoy on a 1% decline in NPI. RevPARs fell 1% yoy to S$209/day on a combination of flat ARR (S$236/day) and a 0.9% pt decline in occupancy from 89.5% in 3Q11 to 88.6% in 3Q12, bucking previous quarter trends of new RevPAR peaks. Individually, local hotels saw yoy revenue declines of 1-2%, except for Orchard Hotel, which saw 1% pick-up due to rooms taken out for refurbishment in 3Q11, and Copthorne King’s Hotel, which saw a 5% revenue drop with the departure of a client group in 2Q.

Weaker corporate market

Overall performance was fairly decent amidst slowdown but the yoy decline might still surprise the street. Flattish occupancy and ARRs appear in-line with peers. Management attributed weaker performance to a slower corporate market. We understand that the main weakness came in Sep due to some cancellation of MICE/corporate events though management has noted a 1% yoy REVPAR growth in the first 24 days of Oct. Tracking Changi Airport passenger movements as an indicator of visitor arrivals, Sep passenger traffic indeed appeared a tad slower with a 5% yoy growth compared to 10% in the first eight months of 2012.

Maintain Neutral

With visitor arrivals moderating and RevPARs still near previous peaks, we see little room for outperformance. Acquisitions could be re-rating catalysts but these could come in pricey and foreign asset additions could dilute CDLHT’s almost pure-local positioning.