• Cut to NEUTRAL from Buy, new SGD1.03 TP (from SGD1.20), 10% upside. Latest Singapore hospitality data points to demand cooling as a result of growing price resistance, the stronger SGD, and the higher supply of hotel rooms, which we believe will likely persist in 2H. CDL Hospitality Trusts’ overseas market remains a mixed bag, with limited growth potential. Financing cost pressures should also persist in the short term. 1H results missed our and consensus’ expectations. While valuations are not expensive, we see no strong catalysts, with growth easing.

• RevPAR for Singapore hotels rose c.8% YoY in 1H, but stripping off a strong 1Q (+17%) on the back of concerts held then, 2Q had a flattish performance (-1%). Management attributed the softer 2Q to a lower event pipeline (particularly weak June numbers), amid an increase in supply and last-minute bookings. 3Q is likely to see a similar decline in RevPAR, considering last year’s strong performance. Our analysis of visitor data shows that, while visitor arrivals are increasing, the average length of stay in 1H fell to 3.5 days from 4.0 days last year. This, we believe, was due to a strong SGD and slight easing of spending power post the initial reopening surge, after the pandemic. Overall, we expect 2H numbers to soften YoY.

• Overseas markets. Germany remains a bright spot, benefitting from the UEFA Euro 2024 event in 1H and the positive 2H outlook from a healthy event pipeline. Similarly, Australia saw healthy growth from a strong event calendar. Inbound tourist demand remains strong for Japan, aided by a weaker JPY. Its UK and Italy hotels saw continued RevPAR growth but was offset by cost pressures, and its Maldives hotels have benefitted from a recovery in visitor arrivals from China. New Zealand segment’s NPI fell 4.2% YoY on a slight RevPAR decline and higher opex, which is likely to persist.

• Gearing stands at c.38%, with management guiding that it will look out for selective acquisition opportunities. It has also committed to a forward purchase of Moxy Singapore Clarke Quay, which is expected to be completed in early 2026. With the acquisition cost estimated at SGD475m, we expect it to turn to equity fund-raising to finance the acquisition.

• 2Q/1H NPI rose 5%/6% YoY mainly aided by Australia, Japan, and Germany markets. NPI growth, however, was offset by higher financing costs, resulting in flattish 1H DPU, which was below expectations. Financing costs are likely to rise 10-20bps in 2H from 1H’s 4.2%. About 48% of its debt is hedged and c.31% of debt is due for refinancing in 2H.

• We cut FY24-26F DPU by 3-5% by trimming our RevPAR growth outlook and NPI margin assumptions. We raise COE assumptions by 60bps, given the increased risks, resulting in a lower TP. Our TP includes a 2% ESG premium.

Source: RHB Research - 5 Aug 2024