Category: CDL H-Trust
Hospitality REITs – DMG
More investment options in tourism space
Historically, the de facto proxy for the hospitality sector has been CDL Hospitality Trusts due to its liquidity and size. With the proliferation in recent hospitality REITs listings, investors will have more choices to play the tourism theme going forward. Ascendas Land recently listed its maiden hospitality trust comprising 10 hotels in Australia, China and Japan in a S$385m listing, offering 437.3m units at S$0.88 each. Meanwhile, Far East Hospitality Trust (Far East HT) is offering 706m units at S$0.93 each to raise S$656m, which will have an initial portfolio comprising seven hotels and four serviced residences worth S$2.1b. These REITs derive the majority of their asset values and income from Singapore and Australia, two markets with favourable demand-supply outlook, with rising tourist arrivals that should drive up room rates and occupancies further.
Buoyant outlook for Singapore hospitality space. CDL HT and Far East HT are both leveraged to the Singapore tourism market, deriving over 80% of revenue from Singapore. Both trusts should continue to benefit from the rising tourist arrivals to the city state, which reached a historical high of 13.2m arrivals last year and is poised to attract 14-15m visitors this year. A host of new attractions, together with the integrated resorts and a growing MICE market should ensure that room demand continues to lead supply, driving high occupancies and room rates. The Singapore Tourism Board (STB) expects tourist arrivals to reach 17m by 2015 (representing 6.9% CAGR during FY11-FY15).
Outlook for Australia hospitality underpinned by favourable demand-supply dynamics. In Australia, the market is equally buoyant, driven by a resilient domestic corporate travel market and rising tourist arrivals from Asian markets such as Japan and China. Due to high replacement costs, new supply in the country is limited and has helped to keep occupancies in gateway cities above 80%. The above trends are favourable for Ascendas HT, which have seven hotels in Australia accounting for 70% of its assets.
Our key picks: CDL HT and Far East HT. The forward yield for Ascendas HT is the highest among the three at 8.0%. Concurrently, CDL HT is trading at FY13F yield of 6.5% while Far East HT trades at 6.3% yield. Yields aside, we believe other important factors to consider include cost of funding, track record of the sponsor, growth of the underlying markets and attributes of the underlying properties. In this regard, we consider CDL HT and Far East HT as having superior risk-adjusted returns. Currently, we have BUY recommendation for CDL HT (BUY, TP S$2.20), a positive view on Far East HT and a neutral view on Ascendas HT.
CDL H-Trust – OCBC
3Q12 YOY WEAKNESS LIKELY FOR THE SECTOR
- Potentially weak 3Q for SG hotels
- Last year’s 3Q was exceptional
- Demand to outstrip supply
Possibly soft 3Q12 for Singapore hotels
Hotels in Singapore may be seeing lower average room rates in 3Q12 on a YoY basis, according to a hospitality industry player we spoke to. For example, a 5-star hotel may be charging S$250++ while they may have charged S$300++ a year ago. In percentage terms, the decline might be less pronounced for higher-end hotels. CDLHT’s hotels are best characterized as being in the two middle tiers (Midtier and Upscale) based on their historical RevPAR figures, and should perform at least in line with the general market.
3Q11 was particularly strong
But a YoY decline for the hospitality sector would not be surprising as 3Q11 was exceptionally strong; 3Qs are traditionally weak quarters. Pickup among hotels for the period of the F1 (21st-23rd Sep) has apparently been poor so far except for hotels in the Marina Bay area. The pricing power of the hotels relative to walk-in customers and corporates may have declined because of reduced booking visibility but this may be buffered by increased pricing power versus certain travel agents.
Demand to surpass supply
According to CBRE, hotel room supply in Singapore is estimated to grow at 4.6% p.a. for 2012-2014 from 49,719 rooms in 309 hotels as of end 2011. CBRE estimates that the spread of hotel rooms by categories as of end 2011 was 14% Economy, 29% Mid-tier, 46% Upscale and 11% Luxury. Based on this, we calculate that the 2012-2014 growth rates of hotel room supplies by tiers are as follows: Economy (7.2% p.a.), Mid-tier (6.4% p.a.), Upscale (3.4% p.a.), Luxury (1.6% p.a.). As a whole, the Mid-tier and Upscale categories are expected to grow at 4.6% p.a., in line with the general market and comparing favorably to hotel room demand, which we expect to grow at 6.4% p.a. for 2012-2015.
Maintain HOLD
We keep our fair value of S$2.06 on CDLHT. As there might be better buying opportunities after the 3Q12 results are out, we maintain our HOLD rating for now.
CDL H-Trust – Kim Eng
Trade with caution ahead
1H12 earnings inline. CDLHT’s 2Q12 revenue rose by 6% YoY to SGD36.6m, while the distributable income for unitholders decreased by 0.9% YoY to SGD28.2m, due to a higher one-off property tax refund of SGD3.3m by IRAS in 2Q11. 1H12 revenue at SGD75.4m, up 12.2% YoY, was 50% of our FY12 forecast but 45% of consensus estimate. 1H12 DPU at 5.70 SG-cts, up 6.7% YoY, was 47% and 46% of ours and consensus estimate respectively.
Portfolio review. Singapore 2Q12 hotel occupany (excluding Studio M Hotel) at 89.7% was up 1.2ppt QoQ and 1.6ppt YoY. Average Room Rate (ARR) at SGD242 was flat QoQ but up 4.3% YoY. However, Orchard Hotel and Copthorne King’s Hotel are showing signs of moderation this quarter, with gross revenue down 7.5% and 3.7% QoQ respectively. Overall 2Q12 portfolio revenue has also softened, down 4.7% QoQ.
Not all hotels are equal. CDLHT Singapore YoY hotels performance has been lagging the overall hotel sector performance in terms of ARR growth (STB registered average year to May 2012 growth of 9.4% p.a.). We suspect that some of the islandwide growth are driven by the the two IRs, such as Marina Bay Sands which saw its 2Q12 ARR rise 29.9% YOY to USD348 (~SGD435) and occupancy up from 90.8% in 2Q11 to 99.1% in 2Q12. Genting Singapore also registered 1Q12 ARR growth of 20.7% YoY to SGD338 with occupancy up from 79% to 86%.
Expect slower tourism growth amidst a more competitive landscape. CDLHT derived ~80% of revenue/NPI from Singapore. We expect tourist arrivals to register 5.2% CAGR over 2010-15 but hotel room supply will grow at 6.3% CAGR, outstripping demand growth of 5.9%. ARR growth is project to slow from 15% in 2011 to 6% this year and 2%-3% over 2013-2015.
Reiterate HOLD. With more hospitality trusts coming onboard (At FY12F P/B of 1.3x, scarity premium likely to compress) and more hotel rooms coming on-stream, we would advise investors to stay cautious. The stock has run up 35% YTD and at FY12F DPU yield of 5.8% and yield spread of 415bps vis-à-vis historic average of 502bps, the stock has limited upside ahead in our view. We think investors would be better off with the more defensive industrial and retail REITs or cheaper hospitality alternatives such as OUE, which has further upside if it injects its assets into a hospitality trust. Reiterate HOLD; TP SGD1.97.
Hospitality REITs – OCBC
OVERWEIGHT, PREFER CDLHT
•ART’s portfolio is resilient
•CDLHT has better growth profile
•We favor CDLHT
Initiate with OVERWEIGHT view
We initiate with an OVERWEIGHT on Singapore Hospitality REITs. We prefer CDL Hospitality Trusts [BUY, FV: S$2.04] to Ascott Residence Trust [BUY, FV: S$1.23].
More organic growth for CDLHT
The buoyant Singapore hotel industry has been the key driver for CDLHT, whose six Singapore hotels accounted for 77% of its FY11 gross revenue. In 1Q12, CDLHT’s Singapore hotels registered an average RevPAR higher than all previous 1Qs and that quarter also marked the third consecutive one, starting from 3Q11, to set RevPAR records. We estimate that for 2012-2015 the demand for hotel rooms in Singapore will grow at 6.4% p.a., outstripping the hotel rooms supply growth, which we project will be 3.7% p.a. over the same period. We prefer CDLHT’s positioning (Upscale/Mid-tier) relative to others more clearly situated in the Mid-tier/Economy categories, as we see higher growth in hotel rooms supply for these latter tiers at 5.3%, versus 3.0% for the Luxury/Upscale categories.
ART’s master leases and management contracts
ART’s portfolio is diversified with properties in 12 countries. As of 31 Mar, 78% of its assets were spread over five countries (Singapore – 22.2%, France – 19.1%, UK – 15.9%, Japan – 12.9%, Vietnam – 8.0%). 40% of ART’s assets are in Europe. Despite the economic problems there, income from ART’s European assets is reasonably resilient, underpinned by master leases arrangements for the 17 properties in France and two in Germany, which contributed a total of 26% of gross profit for 1Q12. In addition, management contracts with minimum guaranteed income are in place for seven properties in Belgium, Spain and the UK, which contributed 12% of 1Q12 gross profit.
Lower gearing for CDLHT
Apart from its stronger potential growth profile, we like CDLHT because of its low gearing of 25.6%, versus ART’s 39.2% (enlarged portfolio excluding new Cairnhill serviced residence), which gives CDLHT more flexibility to acquire yield-accretive properties. We expect that CDLHT may make an acquisition within the next one year, either in Singapore or potentially higher yielding markets abroad.
CDL H-Trust – OCBC
GARDEN OF SUPERTREES
•The unveiling of a major attraction
•Marina Bay highlights
•Good growth to continue for hotels
Gardens by the Bay
“Supertrees” and “Cloud Forest” – Singapore has reached another major tourism milestone with the official opening of the 101-hectares Gardens by the Bay last Thursday. The top 10 gated attractions for 2011 were Sentosa Island (excluding RWS), Universal Studios Singapore, Singapore Zoo, Singapore Flyer, Skyline Luge, Science Centre Singapore, Underwater World Singapore, Songs of the Sea, Night Safari, and the MBS Sky Park. Night Safari has upwards of 1.1m visitors annually, which means the current minimum number of visitors to make the top 10 list could be less than 1.1m. We would not be surprised if the conservatories of Gardens by the Bay break into the top 10 attractions list by 2015.
Solidifying the Marina Bay tourism cluster
Sentosa Island is the tourism heavyweight, accounting for half of the top 10 attractions. With Gardens by the Bay and the recently-opened Marina Bay Cruise Centre, the Marina Bay area will strengthen as a tourism cluster that complements Sentosa. The obvious key beneficiary will be MBS, but there should be significant spillover for other hotel players. The continuous upgrading of Singapore’s position as a leisure hotspot will help the city keep the crown as the global MICE king.
Impact on hotel room demand
STB has a target of 17m visitor arrivals by 2015, implying a growth rate of 6.6% p.a. from 2011. Even with a “leakage” from the conversion of visitor arrivals into hotel rooms nights because cruise passengers are much less likely to book hotel rooms, we estimate that hotel room demand will grow by an enviable 6.4% p.a., easily outstripping the growth in hotel rooms, which we estimate at 3.7% p.a. The 6.4% estimate conservatively assumes no change in hotel room nights per hotel guest.
Maintain BUY
We maintain our BUY rating on CDLHT and our RNAV-derived fair value estimate of S$2.04. It is offering an attractive yield of 6.3%.