• Geographical diversification a plus
• FV drops to S$1.48
• Maintain BUY

3Q16 results in line with expectations

While the trading conditions in Singapore continue to be soft, CDL Hospitality Trusts (CDLHT) managed to post a 3.4% YoY increase for its 3Q16 DPU of 2.44 S cents. 3Q gross revenue jumped 10.5% YoY to S$45.4m, and NPI correspondingly increased 5.3% YoY to S$34.8m. This growth was contributed by the inorganic contribution from UK, an improved performance from New Zealand, and a boost from positive earnings translation for Australia and Japan. Partially offsetting these were lower contributions from Singapore and Maldives. CDLHT’s results were in line with expectations: 9M16 revenue and DPU make up 74% and 72% of our current full-year forecast, respectively.

Singapore hotels report 7.5% drop in RevPAR

3Q16 RevPAR for CDLHT’s Singapore hotels dropped 7.2% YoY to S$168 on the back of a 7.5% drop in the ADR to S$186 which was partially offset by a 0.5 ppt increase in AOR to 90.7%. CDLHT highlighted a slight slowdown in bookings in September, which they attributed to travel advisories issued against Singapore following the Zika outbreak. As expected, the RevPAR drop of 7.5% was less than the 9.2% decline seen in 2Q16, while Zika’s impact on bookings was limited. Oversupply continues to be a worry, with hotel room supply expected to increase 4.1% in 2016, and a further 6.1% in 2017 according to Horwath HTL.

Lowered fair value

Given the uncertainties plaguing the financial and economic environment, we expect continued weakness in corporate demand for Singapore hotels into the first half of 2017. We have pushed back our expectations for a RevPAR recovery till late 2017 or 2018, when the growth in hotel room supply tapers off. After the finetuning of our assumptions for FY17 growth in CDLHT’s various geographical markets, our fair value drops slightly from S$1.53 to S$1.48. Our cost of equity assumption remains at 7.5%. CDLHT’s gearing stands at 36.7%, giving them a debt headroom of S$382m. Against last week’s price of S$1.325, CDLHT is trading at a blended FY16/17 forecasted yield of 7.1%. We maintain our BUY rating on CDLHT with an updated fair value of S$1.48.

Source: OCBC Research - 31 Oct 2016