Category: CDL H-Trust
CDL H-Trust – Kim Eng
Maiden Foray into Maldives
Sale-and-leaseback of Angsana Velavaru. CDLHT announced that it has entered into a conditional sale and purchase agreement with Banyan Tree Holdings (BTH) on 4 Jan for the acquisition of Angsana Velavaru (79 beach villas, 34 water villas) at a purchase price of USD71m (USD628k per key), at a pro forma annualised NPI yield of 9.6% for the nine months ended 30 September. Including the USD0.71m acquisition fee and USD0.68m professional fees, total cost of acquisition is USD72.4m. This will be fully funded through debt financing, which will increase CDLHT’s gearing from 25.5% to 28.6%. Upon completion, CDLHT will leaseback the property to BTH for 10 years.
Lease agreement. Under the lease, CDLHT will receive rent payments equivalent to GOP less management fees. BTH is entitled to a tiered management fee, representing a share of the GOP, only if the GOP for the year exceeds USD4.5m. BTH will also pay a top-up amount to make up for any shortfall in rent below USD6m (the “Minimum Rent”). On the other hand, CDLHT has to set aside an amount equivalent to 3% of gross revenue as FF&E reserve every year and has to fund any capital expenditure required.
Rationale for acquisition. CDLHT’s first resort acquisition positions it as a beneficiary of the growing visitor arrival trends in Maldives, particularly from China. This also marks the beginning of a new lessee relationship with BTH (apart from existing ones with M&C, Accor and Rendezvous Group). CDLHT also believes that the asset presents asset enhancement opportunities. The Ministry of Tourism, Arts and Culture of the Republic of Maldives previously increased the allowable built-up area for tourist facilities as a percentage of the total land area from 20% to 30% in Apr 2012. Moreover, this acquisition also has the additional benefit of reducing CDLHT’s reliance on any single property such that the maximum contribution in gross rental revenue from Orchard Hotel will fall from 18.7% to 17.5%.
Our estimates. We expect the acquisition to complete by Feb 2013, with NPI yield-on-cost of ~8% (Incremental NPI of USD5.7m per annum) and GOP margin of 50%. According to CDLHT, RevPar (YTD Sep 2012) is around USD279 and occupancy ~70%. Room revenue makes up ~73% of total revenue while F&B constitutes the rest. At a cost of debt (USD) of slightly north of 2% (100% debt-funded), we think this acquisition should be yield-accretive for CDLHT.
Reiterate HOLD. We are mildly positive on this acquisition. Nonetheless, with more hospitality trusts onboard (At FY13P/B of 1.2x, scarcity premium likely to compress) and more hotel rooms coming onstream, we would advise investors to stay cautious. The stock has run up 22% in FY12 has limited upside ahead in our view. Reiterate HOLD
Hospitality – OCBC
Muted outlook for 1H13
- More stores to come
- Price competition won’t return
- Fair value raised; maintain BUY
Cautious about 1H13
We note that after an outstanding 1Q12, with RevPAR and visitor arrivals growing YoY by 14% and 14.7%, respectively, growth in RevPAR and visitor arrivals decelerated through 2Q12 and 3Q12. Our channel check indicates that hotel bookings up to Chinese New Year in 2013 are still weak, with limited visibility beyond that. We note that 2013, an odd-numbered year, will likely see fewer MICE events, as biennial events are generally held in even-numbered years. Hoteliers have also expressed concern over the upcoming competition that will result from the growth in hotel room supply; new hotels typically provide substantial room rate discounts in the first few months of operation. With no immediate catalysts in sight, and an uncertain global economic environment, we see a muted outlook for tourism in 1H13.
Continued growth expected over 2012-2014
For 2012-2014, we forecast that hotel demand will grow at 6.4% p.a., outstripping the projected 4.8% p.a. increase in room supply. Supporting the positive longer-term outlook, the top four places of origin for Singapore’s visitor arrivals are projected to have real GDP growth rates of at least 4.8% in 2013 (Indonesia +6.3%, China +8.1%, Malaysia +4.8% and India +6.6% for FY ending Mar 2014).
Supply situation is manageable, and better for high-end hotels
Breaking down the projected growth in hotel room supply for 2012-2014, we note that the lower the tier, the higher the expected supply growth: Luxury (+1.6% p.a.), Upscale (+3.4% p.a.), Mid-tier (+7.0% p.a.) and Economy (+7.2% p.a.). For the first 10 months of 2012, higher hotel tiers showed stronger YoY growth in Average Room Rate (ARR) and RevPAR than lower tiers. We think that this is attributable to the more favourable supply and demand dynamics for the Luxury and Upscale tiers. The number of affluent visitors to Singapore is increasing with the general growth in arrivals, and supply is more stable for the higher-end hotel tiers.
Downgrade to NEUTRAL
We are downgrading the hospitality sector from Overweight to NEUTRAL. Our top pick is Ascott Residence Trust [BUY, FV:S$1.37], due its favourable exposure to the global growth regions of the serviced residence industry – Europe and developing Asia. We also have a BUY rating on Global Premium Hotels [BUY, FV: S$0.29], and HOLD ratings on CDL Hospitality Trusts [HOLD, FV: S$1.91], Far East Hospitality Trust [HOLD, FV: S$1.02] and Genting Singapore [HOLD, FV: S$1.33].
CDL H-Trust – OCBC
AWAITING MORE POSITIVE HOSPITALITY FIGURES
- Cautious 1Q13, growth over LT
- Hotel rooms may get smaller
- Possible acquisition
Exciting 1H12, tempered 2H
Singapore’s hospitality industry posted excellent performance in 1Q12, clocking RevPAR growth of ~15% YoY in 1Q12, according to the STB. Being both a dividend play and one of the most liquid hospitality counters with good exposure to Singapore, CDLHT saw its unit price climb 36% end-2011 to a one-year high of S$2.10 as of 18 Oct 12. However, moderation in the industry’s pace of growth, first seen in 2Q12, increased further in 3Q12. 3Q12 RevPAR for CDLHT declined 0.9% (versus +7.5% YoY in 1H12), and its unit price has fallen 9% from the recent high. With information from multiple sources, we estimate that RevPAR for most Singapore hotels in 3Q12 was generally flat YoY. Our outlook for the hospitality industry remains cautious for the early part of 2013, especially since odd numbered years tend to see fewer MICE events.
Incumbents’ advantage
We estimate that for 2012-2014, overall hotel room stock will grow at 4.8% p.a. while hotel demand will grow faster at 6.4% p.a. We remain positive on the long term growth prospects of CDLHT. We note that hotel sites have been sold at high prices in the past several months. Earlier in Nov, a record price of S$1,167 psf ppr was set for hotel land in Singapore; Resorts World Sentosa’s subsidiary made the top offer for the GLS Jurong Town Hall Road site. In 2Q12, RB Capital’s winning bid for a 99-year leasehold, GLS hotel site at Rangoon Road/Farrer Park Station Road was at $1,079 psf ppr. Due to these high prices the size of future hotel rooms may shrink to ensure a reasonable profit margin. Such a phenomenon would favor existing hotel assets as these would be preferred by business travelers. Incumbents such as CDLHT will have an advantage.
Maintain HOLD
We keep our fair value of S$1.91 on CDLHT and HOLD rating. An acquisition or better-than-expected hospitality numbers in the near term could serve as price catalysts. We believe that a possible acquisition target over the next year is W Hotel Sentosa Cove.
CDL H-Trust – Phillip
Below our expectation!
Company Overview
CDL HT is a stapled group comprising both REIT and Business Trust structures. Its mandate is to invest in a diversified portfolio of income-producing real estate which is primarily used for hospitality and/or hospitality related purpose.
- 3Q12 revenue $36.1mn, NPI $33.6mn, distributable income $26.3mn
- 3Q12 DPU of 2.72 cents
- Maintain Neutral with revised target price of S$1.970
What is the news?
Gross revenue and net property income came in at S$36.1mn (-0.8%y-y) and S$33.6mn (-1.1%y-y) respectively. The slump in top-line figures were because of the slowing global economies which undermined the financial and operational performances of its Singapore hotel portfolio. Currency translation loss from the weakening Australian dollar was also the cause of the fall. DPU was 2.72 cents in 3Q12 (2.77 cents in 3Q11), bringing 9-month DPU to 8.42 cents. This translates to 73%/70.8% of our FY12/consensus DPU estimates.
How do we view this?
3Q12 result was a disappointment. Even we expect higher DPU in the fourth quarter (driven principally by the F&B segment arising from the year-end festivities), CDL HT’s FY12 DPU is unlikely to meet our FY12 DPU estimate.
Investment Actions?
The prolonged slowdown in global economic conditions has caused companies to tighten their accommodation budget. In this regard, we believe hoteliers have less pricing power on the room rate moving forward. Company functions like meetings and conference business were also affected by the economic malaise and will continue to drag down CDLHT’s revenue. Hence, we adjust our top-line figures to better reflect the current market condition and lower our DPU estimates by 2.7% on average over FY12-FY16. We trim our price target to S$1.970 and maintain neutral given little upside based on the closing price of S$1.940.
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.