CDL H-Trust – CIMB

A turnaround quarter

CDL-HT’s 9M14 results are in line with our estimate, with revenue coming in at 74% of our full-year forecast and DPU accounting for 72%. On the back of a remarkable 92% occupancy for its Singapore portfolio, CDL-HT achieved a slightly higher RevPAR of S$192 (+0.5% yoy) this quarter. With the variable income from Angsana Velavaru to be booked in 4Q and the decline in visitor arrivals from China stabilising, we reiterate our Add call and target price of S$1.88 as we expect CDL-HT to deliver a stronger 2H14 earnings.

Stable quarter

CDL Hospitality Trusts (CDL-HT) posted a gross revenue of S$40.1m (+11.9% yoy) and DPU of 2.61 Scts (-1.1% yoy) for 3Q14. This set of results is in line with our estimates, with revenue and DPU accounting for 24% of our full-year forecast. The higher revenue was mainly attributed to the recognition of the hotel revenue of Jumeriah Dhevanafushi (acquired on 31 Dec 2013) and higher occupancy (92%) for its Singapore hotel portfolio. However, this was offset by the operational cost of Jumeriah Dhevanafushi and higher interest cost, resulting in a 1.1% yoy dip in DPU.

Marking a turnaround

Although this quarter’s result is uninspiring at first glance, stripping out the earnings and costs associated with Jumeriah Dhevanafushi reveals that CDL-HT’s hotel portfolio sustained its earnings yoy. Compared to the 5.1% dip in NPI in 1H14, this quarter’s results show a respectable turnaround of the portfolio’s performance. We expect the Singapore hotel market to remain stable in 4Q due to the holiday season and six international sporting events to be held at Sports Hub in 4Q14. With another 447 hotel rooms (c.0.8% of total supply) scheduled for opening by year-end, the supply of new hotel rooms in FY14 is manageable.

Maintain Add

With Angsana Velavaru’s variable rent (c.S$3.1m in FY13) due to be recognized in 4Q and the decline of Chinese visitors to Singapore (-27.4%/-28.2% in July/August vs. -47.1% in 1H14) stabilising, we remain confident that CDL-HT will post stronger results in 2H14 than in 1H14. Currently trading at 7.1% FY15 dividend yield vs. the REITs’ sector average of 6.9%, we do not find CDL-HT’s valuation aggressive and have maintained our Add rating and TP of S$1.88.