• 1Q16 DPU fell 9.0% YoY
• Weak outlook in Singapore
• Downgrade to HOLD

Singapore Hotels affected by weak corporate environment

CDL Hospitality Trusts’ (CDLHT) 1Q16 gross revenue increased 5.8% YoY to S$44.7m, making up 23.5% of our full-year forecast. Income available for distribution fell 8.5% to S$21.9m. As a result, DPU fell 9.0% to 2.22 S cents in 1Q16, making up 21.8% of our full-year forecast.

For CDLHT’s Singapore hotels, which make up 70.5% of its entire portfolio valuation, occupancy dropped 3.8 ppt to 83.9% YoY while Average Room Rates (ARR) fell 3.0% to S$191. This resulted in a REVPAR drop of 6.9% to S$161. CDLHT’s Singapore hotels suffered from weak corporate demand in the industry, also noted by other hospitality REITs, as well as soft room refurbishment in M Hotel and renovations at Grand Copthorne Waterfront.

Mixed Overseas Performance

CDLHT’s Australian hotels continue to be affected by a weaker AUD as NPI fell 18.7% YoY in 1Q16. Mining investment in the country continues to be weak; upcoming hotel room supply in Perth and Brisbane may pose a drag to REVPAR.

CDLHT’s Maldives Resorts clocked poor results, recorded a REVPAR decline of 28.7% in 1Q16 on the back of a strong USD, which depressed high-end leisure discretionary spending. CDLHT’s UK and Japan hotels were bright spots, registering a 7.3% and 7.5% YoY jump in REVPAR respectively. Contributions from New Zealand benefitted from the recognition of full year variable rent for the first time.

Asset Enhancement Initiatives in 2016

Plans to be completed within the year include M Hotel’s ongoing refurbishment of standard and deluxe rooms, as well as Grand Copthorne Waterfront Hotel’s lobby renovation, addition of ~330 sq m of meeting room capacity, and augmentation of F&B offerings.

For CDLHT’s overseas assets, a bar refurbishment has been planned for Novotel Brisbane and lobby/room refurbishment is ongoing at Rendevous Hotel Auckland. While we are optimistic that the Singapore renovations will place CDLHT in a better operating position going forward, we continue to be concerned with the weak industry outlook. Given the recent price appreciation, we downgrade to a HOLD at the same fair value of S$1.38.

Source: OCBC Research - 3 May 2016