COMPETITION TO INCREASE

• Challenging to increase visitor spend
  
• Increased competition in CDLHT’s tiers
  
• Raise FV to S$2.11
  

STB targets for 2013 are out

In 2012, Singapore registered visitor arrivals of 14.4m (+9.1%) and tourism receipts of S$23b (+3.1%). For 2013, STB is targeting 14.8m-15.5m arrivals (+2.9% to +7.7% YoY) and tourism receipts of S$23.5b-24.5b (+2.2% to +6.5% YoY). The government has noted that the next phase of growth will have to come from increasing the spend per visitor, as opposed to just adding more visitors. However, STB seems to be incorporating slightly lower spend per visitor arrival assumptions for 2013 compared to 2012, based on the implied YoY growth rates of the 2013 targets. We believe that this highlights the challenge of converting arrivals into increased spending, and supports our thesis that the 1H13 outlook for Singapore hospitality is muted.

Blended exposure to Upscale and Mid-tier

We believe that CDLHT’s Singapore hotels are fairly evenly exposed to the Mid-tier and Upscale segments, because their FY12 RevPAR was S$211, close to the mean of S$264 and S$171, which are the RevPAR averages for Singapore Upscale and Midtier hotels respectively. As detailed in our hospitality sector report dated 5 Mar 2013, we project that for 2013-2015, the Economy, Mid-tier and Upscale/Luxury categories will grow +5.9% p.a., +8.5% p.a. and +4.4% p.a. respectively. As a group, the Midtier/ Upscale/Luxury segment will grow 5.8% p.a., the same rate that the overall supply will grow. This rate is lower than the projected room demand of 5.4% p.a., indicating that competition is likely to intensify in the segments that CDLHT is represented in. We also note that 1Q13 results are probably going to be weak due to the lack of the biennial Singapore Airshow and the fact that Chinese New Year is in Feb this year instead of Jan (corporate travel picks up after CNY).

Maintain HOLD

Adjusting our assumptions and removing the 10% discount to RNAV to better reflect the worth of CDLHT’s hotel properties, we are raising our fair value from S$1.93 to S$2.11; but maintain a HOLD rating since CDLHT is trading near our fair value.

Room for growth

• 4Q12 results in line
  
• Challenges in operating environment in the near term
  
• Acquisitions to boost earnings performance; with more headroom, management remains on the hunt for more
  
• BUY, TP S$2.11 maintained
  

Highlights

4Q12 results in line. Gross revenue and NPI declined marginally by 1.4% and 0.2% y-o-y to S$38.3m and S$35.6m respectively. Performance of its Singapore hotels was flattish (excluding Studio M Hotel) to S$205/night (flat y-o-y, -1.5% qo-q) and while earnings from its Australia hotels were weaker due to the weaker AUD-S$ exchange rate. As a result, income available for distribution (after retained income) of S$ 28.1m was 0.9% lower y-o-y, translating to a DPU of 2.90 Scts ( -1.4% y-o-y).

Our View

Challenges in the near term; new competing room supply to limit significant hikes in room rates. We noted that occupancies for its Singapore portfolio remained fairly firm at 89.3% but the average daily rate was marginally lower at S$229/night (-1.3% y-o-y) The performance of its hotels was also slightly weaker due to a softer banquet business (which typically peaks in 4Q) but Novotel Clarke Quay hotel continue to be the top performer with a 11% y-o-y growth in revenues given its suite of renovated rooms. Looking ahead to 2013, management remains cautious on the near term outlook and expects the year to start off weaker with corporate bookings coming in stronger post the Chinese New Year in Feb. Looking ahead, with new incoming hotel supply over the coming quarters (4,138 rooms, +8% of current supply), we believe that further room rate hikes is likely to be limited (we are forecasting RevPAR growth of +3% in 2013).

Angsana Velavaru acquisition to boost performance; further acquisitions possible. The acquisition is expected to be soon and will contribute positively to earnings in the subsequent quarters. Gearing post acquisition remains conservative at c.29%, still below management’s comfortable level of 35%. Acquisitions are a likely feature and management remains watchful for opportunities and Japan, remains a likely target.

Recommendation

BUY maintained, TP S$2.11. Guidance for payout ratio to remain at 90% for FY13F and we have adjusted our numbers slightly to reflect this. CDREIT offers an attractive 4% CAGR in DPU over FY13-14F, with potential upside if further acquisitions are executed on. BUY, TP S$2.11. CDREIT offers a prospective 5.9-6.2% yield.

Decent 4Q but muted guidance

Performance was decent amidst headwinds from weaker corporate travels. Given the upcoming room supply and tighter corporate travel budgets, management guidance remains fairly muted. We see little room for outperformance at current levels.

4Q/FY12 DPUs were slightly below street and our estimates, forming 26/98% of our FY12 forecast. The slight deviation came from higher interest costs as operating performance was in line. We cut DPUs on higher interest cost assumptions, hence our lower DDM-based target price (discount rate: 8.1%). Maintain Neutral.

Decent performance amidst headwinds

4Q12 DPU (still on unchanged 90% payout) was down 1% yoy. NPI was flat yoy as stronger performance from Grand Copthorne Waterfront, Novotel Clarke Quay and its New Zealand asset offset yoy declines on its other assets. Local assets were hit by weaker corporate travels, while fixed rents from Australian assets suffered translation loss arising from the weaker A$. Locally, RevPAR was flat as stronger occupancy (+0.8% pts yoy to 89.4%) offset weaker ARR (-1.3% yoy to S$229/day).

Muted guidance

Management guidance was fairly muted, given concerns over tighter corporate travel budgets and room supply (+8%) in 2013. For 1Q13, management expects performance to be affected by the absence of the bi-annual Singapore Air-show and a later Chinese New Year this year, which could affect the momentum in Feb. So far, RevPAR growth is in line at 1% yoy for the first 27 days of 2013 (note the earlier Chinese New Year in Jan 2012). Corporate renewal rates have thus far been lifted by an average of 2-5% yoy.

Maintain Neutral

Valuations are not overly demanding at 6% yield and 1.2x P/BV. However, we maintain Neutral in view of the muted local organic growth outlook. We will turn more positive on signs of improved acquisition momentum and a turnaround in the local hospitality outlook.

FLAT 4Q12 RESULTS AS EXPECTED

• Revaluation gain of S$15m
  
• 4Q12 RevPAR flat
  
• Maintain FV
  

4Q12 in line

CDL Hospitality Trusts (CDLHT) reported 4Q12 results that were generally in line with ours and consensus estimates. Revenue grew by 1.4% YoY to S$38.3m, and net property income rose by 0.2% YoY to S$35.6m. For 4Q12, NPI contribution from the Australia hotels declined 3.0% YoY to S$4.3m due to translation loss arising from the weaker AUD. CDLHT recorded a revaluation gain of S$15.0m on its properties, which was largely due to its Singapore properties. 4Q12 DPU of 2.90 S cents was down 1.4% YoY. FY12 DPU totaled 11.32 S cents, up 2.4% YoY and giving an annualised distribution yield of 5.7% based on the closing price on 29 Jan 2013.

Full year RevPAR record

RevPAR for the Singapore hotels was flat YoY in 4Q12 at S$205; occupancy was up 0.8ppt at 89.4% while average daily rate fell 1.3% YoY to S$229 (excludes Studio M Hotel, which was acquired on 3 May 2011). Management indicated that travellers remained cautious about their expenditure due to the weak global economic climate, and MICE business was affected too. For FY12, RevPAR excluding Studio M Hotel grew by 3.3% to S$211, a record high. Our assumptions turned out to be fairly accurate; we had assumed 3.2% YoY RevPAR growth for the Singapore hotels.

Quiet outlook for SG hotels

In the first 27 days of Jan 2013, the RevPAR for the Singapore hotels (excluding Studio M Hotel) increased by 0.9% YoY. For 1Q13, management noted that apart from stiffer competition, there will be the absence of the bi-annual Singapore Airshow and additionally, CNY will fall later this year (Feb instead of Jan), possibly delaying the seasonal pick-up in corporate travel. Weak accommodation demand by corporate and leisure travellers is likely over the next 12 months. The proposed acquisition of Angsana Velavaru Maldives is expected to be completed around the end of Jan 2013. Gearing post-acquisition will be healthy at ~27.9%.

Maintain HOLD

We maintain our fair value of S$1.93 and HOLD rating on CDLHT.