Category: CDL H-Trust
REITs – CIMB
Engines started
The Singapore Tourism Board (STB) recently released the Jul 2014 visitor arrival and hotel RevPAR data. Although the numbers did not appear exciting at first glance, the mom growth figures in Jul 2014 were the strongest in the last five years. This trend was in line with our expectations of a stronger tourism/hospitality sector in 2H14 and could mark its turnaround. We maintain our sector Overweight rating, with CDL-HT and OUE-HT as our top picks in the hospitality REITs sector.
What Happened
STB's recently published Jul 2014 tourism numbers showed that tourist arrivals dipped 0.9% yoy, while hotel RevPAR was flattish in 7M14.
What We Think
Although visitor arrivals in Jul 2014 were weaker than in Jul 2013, they were stronger than in Jun 2014. Although Jul is a seasonally strong month for tourism, we think it noteworthy that visitor arrivals rose 19.2% mom in Jul 2014 compared to the historical average of 13.5% (since 2010). Similarly, Chinese and Indonesian tourist arrival rates rose 97.4% and 6.7% mom in Jul 2014, respectively, above the historical average of 65.5% and -1.7%, respectively. Although this growth could partly be due to the low base from 1H14, we think that it marks a turnaround in the tourism sector, thanks to the easing political tension in Thailand and slight recovery from the negative impact of the MH370 disappearance earlier this year. The recovery is supported by the gradual recovery in Chinese visitor arrivals growth in Singapore during the past two months (vs. arrival rates in Jun-Jul 2013) from the trough of -51.7% yoy in May 2014. In Jul, we note that hotel occupancy growth of 5.1% mom was the strongest in the past five years, despite the flattish yoy hotel RevPAR. Among the various classes of hotels, luxury and upscale hotels continued to deliver strong performances, posting RevPAR gains of 11.2% and 2.8% yoy, respectively. Economy hotels posted a surprisingly strong RevPAR increase of 7.5% yoy. As highlighted in our previous report titled 'Impending turnaround', we continue to believe that Singapore's hospitality market will deliver stronger performance in 2H14 than 1H14, barring any unforeseen circumstances. Our view is based on the following positive factors: 1) the stabilisation of the Indonesian Rupiah, 2) delays in the delivery of several hotel projects, which will halve the estimated new supply of hotel rooms in FY14, 3) the slightly stronger tourist arrivals in 2H14 (+2.8% hoh, based on our estimates), and 4) the stronger corporate spending expectations in 2H14.
What You Should Do
We believe that CDL-HT (Add, TP:S$1.88) and OUE-HT (Add, TP: S$0.96), which are REITs with upscale hotels in their Singapore portfolio, will be prime key beneficiaries of the anticipated recovery in the hospitality sector in 2H14. Currently, CDL-HT is trading at 1.0x FY14 P/BV, with 6.5% FY14 dividend yield and 7.1% FY15 dividend yield, while OUE-HT trades at 1.0x FY14 P/BV, with 7.8% FY14 dividend yield and 8.0% FY15 dividend yield. These valuation levels are undemanding in our view when compared against CDL-HT's trading range of 5-6% yield and 1.4x P/BV in 2010/11.
CDL H-Trust – CIMB
Speed bump
CDL-HT’s 1H14 DPU was largely in line, at 46% of our full-year forecast. Although 2Q was a weak quarter, management indicated that 2H should be more positive. Coupled with fewer hotels coming online in FY14 and more events in 2H, we retain our positive view of this sub-sector and our Add rating for CDL-HT. But we are lowering our FY14-16 DPU forecasts by 1.9-4.9% in view of a slow corporate spending recovery and Chinese arrivals, leading to a slightly lower DDM-based (discount rate: 8.3%) target price of S$1.88.
Weak quarter
CDL-Hospitality Trusts’ (CDL-HT) 2Q14 results were largely in line, with 2Q DPU accounting for 22% of our full-year forecast and 1H achieving 46% of our FY14 forecast. Revenue for the quarter was up, largely due to additional contribution from Jumeriah Dhevanafushi, Maldives, which was acquired in Dec 13. However, this was offset by lower rent contribution from the Singapore portfolio where RevPAR dipped by 6.2% during the quarter. The weak DPU was exacerbated by the renovation at Claymore Link, acquisition cost of Jumeriah Dhevanafushi and exchange loss from Australia.
Brighter outlook
Although 2Q was a weak quarter, management is more positive on the outlook for 3Q on the back of quality events complemented by the recent opening of the Singapore Sports Hub which will be hosting another eight international sporting events in 2H14. Management further highlighted that in July, occupancy in Singapore started to improve on the month before and August is expected to strengthen further with notably more corporate activities. In addition, FY14 supply of new hotels has slowed considerably to 1,577 rooms (vs previously forecast of 2,572), which we believe will boost the performance of the hotel scene in 2H.
Maintain Add
Seasonally, 2Q is usually a weaker quarter for CDL-HT. Although this quarter was made worse by a slowdown in corporate spending and Chinese arrivals, we believe that the outlook for tourism in Singapore remains bright, with the turnaround coming in 2H14. We lower our FY14-16 DPU forecasts by 1.9-4.9% but maintain our Add rating.
Hotel REITs – CIMB
Quantity lower, quality higher
Visitor arrival to Singapore was flat yoy in 1Q14. This was largely due to lower Chinese visitor arrivals in Feb and Mar, which we attribute to: 1) a new tourism law in China, and 2) the MH370 incident. Although the number of visitors from China has dwindled, we believe the average Chinese spending in Singapore has strengthened, benefitting the luxury and upscale hotels. We maintain our Add rating on OUE-HT (TP: S$0.96) and CDL-HT (TP: S$1.97), and our Reduce rating on FEHT (TP: S$0.80).
What Happened
Recent data from the Singapore Tourism Board (STB) revealed that visitor arrivals to Singapore remained flat yoy in 1Q14. During this period, higher visitor arrival from South East Asia (+4.1% yoy), on the back of stronger arrivals from Indonesia (+5.5% yoy), was offset by weaker visitor arrivals from China (-14.0% yoy). On the other hand, it was noted that RevPAR for Singapore hotels during the first four months rose by 2.1% yoy, despite a 0.7% yoy drop in occupancy. The growth was attributed to the upscale and luxury hotel segments, where RevPAR expanded by 10.1% and 3.1% yoy, respectively, vs. -4.4% in the mid-tier and +0.2% in economy segments.
What We Think
The slowdown in visitor arrivals from China could mainly be attributed to 1) the new tourism law in China which took effect in Oct 2013, and to a lesser extent 2) the MH370 incident. During Feb 14 and Mar 14, Chinese visitor arrivals dropped by an average of 19.5% yoy. During this period, although fewer Chinese came on multi-country package tours, more are travelling here on their own – and this group of visitors tend to spend more. As highlighted by data released by STB earlier this year, total Chinese tourism receipt in 4Q13 grew by 1% despite visitor arrival from China dipping by 31% over the same period. During 2013, Chinese spending was also noted to reach c.S$3.0bn, exceeding the Indonesians (at S$2.3bn) for the first time since 2007. Furthermore, tourism shopping tax refund company Global Blue recently pointed out that Singapore remains the second most favoured shopping destination for the Chinese after Paris. This trend is expected to strengthen further as the government aims to position Singapore as a top luxury lifestyle destination through various partnerships with Chinese tourism providers. Besides the patronage from big Chinese spenders, the upscale and luxury hotel segments are expected to benefit from 1) stronger Indonesian visitor arrivals, 2) packed calendar of events in 2014, and 3) a potentially stronger corporate spending trend as the global economy continues to recover in 2014.
What You Should Do
With the luxury and upscale hotel segments’ RevPARs expected to be strong in 2H14, we maintain our Add rating on OUE-HT (TP: S$0.96) as the company has the ability to boost RevPAR through the sponsor-funded AEI of its Mandarin Orchard hotel. Similarly, we remain positive on CDL-HT (Add; TP: S$1.97) and expect continual good performance from its Singapore and Maldives portfolios. On the other hand, we are negative on FEHT (Reduce; TP: S$0.80) as we expect its portfolio of mid-tier hotels, particularly those located along Orchard Road, to come under pressure amid intensifying competition in the coming months.
CDL H-Trust – CIMB
Picking up the pace
1Q14’s results were largely in line (core net profit at 26% of our FY14 forecast), demonstrating a more positive hotel market than a year ago. The stronger performance was partly due to Feb 14’s Singapore Airshow and the betterthan- expected performance of the Maldives portfolio. We keep our Add rating with a higher DDM-based target price of S$1.97 (discount rate of 8.9%) as we raised our DPU estimates for FY14-FY16 by 2.3-3.5%; factoring in the stronger performance of both Maldives and Singapore portfolios.
Strong quarter
In 1Q14, CDL-HT’s top line and DPU grew by 15.3% and 2.4% yoy respectively. RevPAR for the quarter increased to S$192 from S$187 in 4Q13, due to the stronger performance of its Singapore hotels, though this growth was dampened by more intensive competition as the market continued to digest the increased supply of 3,357 rooms. The new portfolio in Maldives also boosted the top line by c.S$7.6m. This growth, together with a stronger performance of its New Zealand hotel, was nevertheless partly dampened by the weaker Australia portfolio performance, the weaker Australian currency, and the loss in income from the AEI at Claymore Link – scheduled to be completed in 4Q14.
Positive outlook expected to be dampened by new supply
With an expected stronger recovery in corporate spending in FY14, we expect CDL-HT (c.55% of earnings from corporate spending) to benefit from this trend. Furthermore, earnings are likely to be further boosted by a fully packed calendar and multiple MICE events this year. However, the potentially more intense competition as the market digests the new supply of hotel rooms is likely to limit any expected RevPAR upside to c.2-3% in FY14.
Maintain Add
With an expected stronger Singapore portfolio coupled with the stellar performance of its two hotels in the Maldives, we believe that CDL-HT’s earnings will continue to grow. We maintain our Add rating with a higher TP of S$1.97, with potential upside surprises if more yield accretive acquisitions are done during the year.
CDL H-Trust – OCBC
Encouraging 1Q14 results
1Q14 DPU up 2.2% YoY
- Maldives resorts key growth driver
- Competitive landscape to persist
1Q14 results exceeded expectations
CDL Hospitality Trusts (CDLHT) reported 1Q14 gross revenue of S$43.8m, up 15.3% YoY, due to higher contribution from its Maldives resorts and stable performance from its Singapore hotels. NPI rose at a slower pace of 4.1% to S$36.7m, dragged down by higher operating expenses with the inclusion of Jumeirah Dhevanafushi into CDLHT’s portfolio. Consequently, distributable income increased 3.0% to S$29.9m, while DPU grew 2.2% to 2.75 S cents. Nevertheless, the results were ahead of expectations, as the quarterly distribution made up 26.5% of our FY14 DPU projection.
RevPAR growth for Maldives and Singapore assets
Jumeirah Dhevanafushi made its maiden revenue contribution of S$6.9m, whereas Angsana Velavaru added S$0.7m (+54.1% YoY) to rental revenue. As a whole, the two Maldives resorts registered a RevPAR growth of 10.4% YoY. For the Singapore hotels, RevPAR also improved 0.5% to S$192 on the back of a 1.2ppt increase in occupancy to 88.2% and return of the biennial Singapore Airshow in Feb. This helped to offset the loss of income from the closure of Claymore Link for refurbishment. However, we note that the operating environment in Singapore remains competitive amid a restrained corporate travel budget and larger supply of new hotel rooms, as evidenced by a slight 0.5% decline in average daily rate.
Australia hotels hit by weaker AUD and variable income
The Australian hotels saw reduced contribution of S$5.0m in 1Q, down 21.4% YoY. This was attributable to a depreciating AUD and lower full-year variable income of S$1.1m (1Q13: S$2.0m) as a result of softer showing in 2013 and partial closure of Mercure Brisbane. Management cautioned the slower Australian economy and lower activity in the mining sector may lead to continued weakness.
Maintain HOLD
Looking ahead, CDLHT expects the ~2,500 new rooms supply to perpetuate the competitive environment in Singapore. For the first 23 days of Apr, we understand that RevPAR for its Singapore hotels eased 1.2%. However, as we factor in the better results, our fair value is now raised to S$1.80 from S$1.65. Maintain HOLD.