• New Zealand is a bright spot
• Risk-free rate increases to 2.7%
• FV pared to S$1.46

FY16 RevPAR for Singapore properties down 8.6%

CDL Hospitality Trusts (CDLHT) posted results that were within expectation. FY16 DPU decreased 0.6% YoY to 10.00 S cents, making up 105% of our full-year forecast. NPI increased 0.4% to S$137.6m, or 103% of our forecast, on the back of a 4.9% increase in gross revenue to S$180.9m, or 101% of our forecast.

The growth was boosted by inorganic contribution from the UK hotel as well as higher NPI growth from the NZ hotel as a result of higher variable rental income. CDLHT also recorded a net fair value loss of S$21.6m for FY16, as its Singapore and Maldives properties suffered fair value losses that outstripped the fair value gains on its NZ and Australian properties.

New Zealand to fuel growth in FY17; Singapore and Maldives to remain challenging

Going forward, CDLHT’s Grand Millennium Auckland is expected to continue to benefit from the strong RevPAR growth (24.9% in NZD terms in 4Q16), especially given the revised lease structure with higher variable income. In 4Q16 alone, NPI from New Zealand more than doubled to S$5.2m.

For Singapore, we expect CDLHT’s RevPAR declines to be greater this year (-8.6% or lower) with the upcoming ~6% supply injection, continued weakness in the corporate segment with O&G firms, and a less packed MICE schedule during an odd-numbered year.

Maldives is also expected to remain challenging with a strong USD that discourages travel from its top source markets. We expect Hilton Cambridge City Centre’s operations to remain largely unaffected by the implementation of Brexit in FY17, though we note the risk of a negative translation effect should the pound weaken further.

Lowered fair value to S$1.46 as risk-free rate increases

As we increase our risk-free rate from 2.4% to 2.7%, our fair value drops slightly from S$1.48to S$1.46. As of yesterday’s price, CDLHT is trading at a FY17 dividend yield of 7.0%. As prices have appreciated substantially in recent weeks (+8.4% month-to-date), we downgrade CDLHT from a Buy to a HOLD with an updated fair value estimate of S$1.46.

Source: OCBC Research - 27 Jan 2017