• 2Q16 DPU fell 0.9% YoY
• FV increases to S$1.53
• Upgrade to BUY

2Q16 results in line with expectations

CDL Hospitality Trust's (CDLHT) 2Q16 results were within expectations. 2Q16 DPU fell 0.9% to 2.23 S cents, coming up to 21.8% of our fullyear forecast. In comparison, 2Q15 DPU contributed 22.3% of FY15 DPU. Gross revenue increased 8.9% YoY to S$42.5m, largely due to the S$5.8m contribution from Hilton Cambridge City Centre and an incremental revenue boost of S$0.9m from the refurbished Claymore Connect.

2Q gross revenue came up to 22.3% of our fullyear forecast. 2Q16 NPI dropped 0.9% YoY to S$31.3m on the back of soft trading conditions in Singapore and the Maldives markets, as well as lower contribution from New Zealand and Australia markets due to local currency weakness. 2Q16 distributable income after retention and capital distribution fell 0.3% YoY to S$22.1m.

Singapore hotels report 9.2% drop in RevPAR

CDLHT’s Singapore hotels reported both lower occupancy and ARR in 2Q16. Occupancy fell 3.0 ppt YoY to 83.5%, while the ARR fell 6.0% YoY to S$188. As a result, RevPAR fell 9.2% YoY to S$157. CDLHT highlighted the absence of SEA Games in June as having a significant impact with 4 out of 6 of its Singapore hotel assets being designated as SEA Games hotels last year.

The Australian assets reported a decline in NPI of 3.3% YoY due to the weaker AUD during the quarter. The Maldives resorts continue to perform badly, with a RevPAR decline of 26.6% YoY due to the continued strength of the USD against the euro and rouble, as well as a decline in Chinese visits for the first five months in 2016.

Lowered risk-free rate

We have lowered our risk-free rate for CDLHT from 3.0% to 2.4% and lowered our beta given the enhanced portfolio diversification by geography. Our cost of equity comes up to 7.5%. After the fine-tuning of assumptions mentioned above, our fair value increases from S$1.38 to S$1.53.

Against yesterday's price of S$1.47, CDLHT is currently trading at a blended FY16/17 forecasted yield of 6.7%. We upgrade CDLHT to a BUY with a fair value of S$1.53.

Source: OCBC Research - 1 Aug 2016