Category: CDL H-Trust
CDLHTrust – DBS
Cutting Dividend Payout
CDL HT reported their FY08 results in line with expectations. DPU of 10.6cts for the year meant a DPU yield of 16% for unitholders. However, the trust is reducing their payout ratio to 90% from 2H08 onwards, in light of an increasing challenging operating environment. We switch our methodology to DDM to take into account the reduced payout. TP is adjusted to S$0.70. Maintain HOLD. CDL HT is trading at c..11% FY09-10F DPU yields.
Results in line. Gross revenues and NPI, which came in at S$115m and 103m (+26% and +20%) respectively, were in line with our estimates. This was on the back of a 20% yoy growth in RevPAR to S$208, which mainly reflected the stronger first 3Qtrs results offsetting a slightly weak 4Q. Distributable income of S$91.9m was also in line. DPU of 10.6 Scts for the year was slightly below our estimates, due to a change in payout ratio to 90% from 2H08 onwards. NAV was adjusted downwards to S$1.42 due to a 9.1% write-down in asset values. Gearing remains low at 18%. The trust is looking to finalize the refinancing of ST loans in the near future.
Moving to a lower payout ratio. Mgmt guided that the decision to reduce payout was driven by financial prudence and use for working capital and potential capex in the light of a deteriorating local tourism outlook. Though we agree that this will enable better financial leverage for the trust moving forward, it comes at a high price as the trust will be liable for tax on the retained amount.
Switching to DDM valuation. We switch our valuation methodology to DDM to take into account the impact of a reduced payout moving forward. Our target price, as a result, is reduced to S$0.70 (11% cost of equity, 1% terminal growth). Maintain HOLD.
CDLHTrust – CIMB
Bracing for a rough ride
• Weak 4Q08 results but FY08 in line. 4Q08 results were weak, with DPU of 1.8cts forming only 16% of our full-year estimate. However, due to strong performances in the earlier three quarters, full-year DPU of 10.62cts was in line with Street and our expectations, at 95% of our estimate. Full-year gross revenue of S$114.7m was up 26.5% yoy on strong average room rate (ARR) growth of 23.9% to S$244. Compared with 4Q07, portfolio occupancy in 4Q08 declined 4.9% pts to 83.7% although ARR still grew by a modest 3.7% to S$224. REVPAR in 4Q08 was S$188, down 1.6% from 4Q07.
• Increased property expenses and tax adjustments hit NPI. 4Q08 net property income (NPI) of S$21.7m was down 19.4% yoy due to: 1) a one-off S$3.2m additional property tax with respect to 2006 and 2007, based on revised assessments by IRAS in Dec 08; 2) an increase in the computation of the annual value of hotels to 20% of gross room receipts (previously 15%) from 1 Jan 08; and 3) S$1.3m paid to the MCST of the Liang Court complex for replacement and refurbishment works.
• Reducing payout to 90%; tightening expenses. Going forward, management‘s focus would be on: 1) maximising revenue by concentrating on non-transient hotel stayers such as airline crew and increasing weekend stays; 2) cost containment through increasing staff productivity; and 3) capitalising on economies of scale through the M&C group. Management will be distributing 90% of its taxable income for 1 Jul-30 Dec 08, instead of 100%. Although this would attract an 18% corporate tax on the S$4m retained, management defended its decision on the basis of an increase in financial flexibility and discipline in capital management. The 10% retention of distributable income reduces paid-out DPU by 4.5%.
• Maintain Underperform; lower target price of S$0.68 (from S$0.77). We reduce our payout assumptions from 100% to 90% and our DPU estimates for FY09-10 have been lowered by 10% accordingly. We also introduce FY11 forecasts. At 0.46x P/BV, CDLHT is more expensive than its hospitality peer, ART (0.38x). In view of continuing slowing visitor arrivals, catalysts appear lacking for 1H09. Maintain Underperform.
Hospitality – DBS
From Formula One To None
Tourist Arrivals Continue to Drop YoY: October 2008 tourism data extended the continued decline in visitor arrivals, which have been dropping yoy since June 2008. For the month, total tourist arrivals were 843,000, representing an 8.1% fall compared to the year-ago period. This brings 2008 year-to-date arrivals to around 8.4 million. With 2 months of the year remaining, visitor arrivals and spending are expected to fall short of the 2008 targets of 10.8 million and S$15.5bn respectively. If we project the similar c.8% drop yoy in tourist arrivals to November and December numbers, overall arrivals in 2008 will come in at just a touch above 10 million, and would represent the first yoy drop in annual tourist arrival numbers (from 10.3 million in 2007) since the SARS outbreak in 2003.
RevPAR Growth Hits A Roadblock: Average Room Rate (ARR) was estimated at S$241, which is an 8.4% increase over the year-ago period. The Average Occupancy Rate (AOR) for gazetted hotels was estimated at 82% in October, which was a drop of 6.8 percentage points over October 2007. RevPAR grew only by 0.1% yoy to S$199, the first month this year with flat RevPAR growth over the year-ago period.
Cautious on Sector, Banyan Tree TP Reduced: We remain CAUTIOUS on the hospitality sector. We retain our HOLD call on CDL HT (TP S$0.62), with its mid-tier to upscale hotel mix more likely to benefit from business travel downgrades, borne out by the reduction in RevPAR of around c.2% for these two segments in October 2008, compared to a c.9% drop in RevPAR for the luxury segment. We also maintain HOLD on ART (TP S$0.57) with our view that its earnings are likely to be most resilient among the hospitality plays, given longer leases and a likely increase in contract work (over permanent employment) in current uncertain markets. We retain our FULLY VALUED call on Hotel Properties (TP S$0.76), with its slate of local luxury hotels and regional luxury resorts likely to be impacted by the global economic downturn. We also maintain FULLY VALUED on Banyan Tree, and have increased the discount to its SOTP valuation of S$1.23 from 60% to 70% on account of the deteriorating political situation in Thailand, which we believe will impact tourism arrivals for some months to come. Our TP is reduced from S$0.52 to S$0.37.
CDLHTrust – CIMB
Vulnerable in volatile times
• Downgrade to Underperform from Neutral. CDHLT is the largest hotel owner in Singapore by number of rooms. The global economic slowdown is negative for the short-stay hospitality sector which is traditionally vulnerable. Despite long master lease structures for its hotel assets, the minimum rent component for its initial four assets acquired at listing and Hotel Rendezvous in New Zealand only contribute a third of our gross revenue forecast for FY08. This subjects CDLHT’s gross revenue to a large degree of uncertainty. Slowing visitor arrivals in September despite the well-publicised F1 event is in line with our house view that the US financial crisis could result in a marked slowdown in Asia. Earlier, we had cut our REVPAR forecasts by 10-20% and removed our acquisition assumptions for FY09-10. The sole saving grace for CDLHT is its low asset leverage of 18.2%, which gives it ample financial flexibility.
• Unchanged DDM-derived target price of S$0.77 (discount rate 10.8%). A recent short rally has brought CDLHT’s share price close to our target price of S$0.77. Downgrade to Underperform from Neutral on valuation grounds.
REITs – CIMB
Ripe for the picking
• Looking cheaper than ever. YTD, the Singapore REIT index has fallen 56% (vs. the STI’s 48% decline), driven by fears of REITs’ inability to secure refinancing, and falling rents and occupancy in an economic downturn. Average P/BV for the S-REIT sector has fallen to 0.51 while average yields have doubled to 14% in the last two months.
• REITs with strong credit and risk metrics get gold. Despite the credit crunch, there are still REITs that exhibit strong credit and diversified risk metrics. The presence of strong sponsors and government-linked sponsors is advantageous at this juncture. To these, banks are not only willing to lend but lend on more favourable terms. Some REITs have even managed to move away from borrowings that require pledges on their assets or rental income, thereby retaining financial flexibility.
• Asset devaluation risks small, financing ability not impaired yet. Most of the REITS are still within safe gearing levels. This implies a low risk of breaching impairment levels and could mean debt funding would still be available to them.
• Look for efficiency. In the midst of the credit crunch, acquisitions and asset enhancements requiring significant outlay would be difficult, particularly in 2009. More attention should be focused on the operational efficiency of the REIT manager in pushing every dollar of rent from the top down to the distribution level. CDLHT stands out as an efficient REIT manager with a remarkably close match between its revenue growth (222%) and DPU growth (211%), in our comparison.
• Overweight on S-REITs; top picks are PLife and CCT. With the strong selldown of REITs, we see an opportune time to accumulate positions. We maintain our Outperform ratings on A-REIT, CIT, FCT and PLIfe. We upgrade CCT and MLT to Outperform from Underperform and Neutral respectively. We maintain our Underperform on ART but downgrade CDLHT to Underperform from Neutral. While PLife remains our top pick for its limited earnings downside and strong financial flexibility, CCT emerges as a deep-value pick with the lowest P/BV of 0.28x among REITs under our coverage, and below the S-REIT average of 0.5x. We believe that all negatives have been priced in and forward yields at 12.2% (CY09) look attractive.
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