• 4Q17 DPU falls 5.7% YoY
• 5.3% FY18F yield as of 26 Jan
• FV increases to S$1.60

4Q Results Within Expectations

CDL Hospitality Trusts’ (CDLHT) results were within expectations. 4Q17 revenue increased 14.3% YoY to S$55.2m on the back of inorganic contribution from The Lowry Hotel in Manchester and Pullman Hotel Munich. NPI increased 7.8% to S$40.6m. 4Q17 DPU dropped 5.7% to 2.83 S cents. FY17 DPU came up to 4.3% to 9.22 S cents or 101.8% of our full-year forecast, mainly due to a slight difference with our capital distribution assumption.

SG RevPAR Increased 1.1% YoY in 4Q17

The bulk of CDLHT’s portfolio – 63.9% of its latest valuation – still lies in locally-based assets. Singapore Hotel RevPAR increased 1.1% to S$155 in 4Q17, mainly due to a 1.2% increase in ADR, though Singapore Hotel NPI was down due to lower F&B revenue. Hua Ting at Orchard Hotel was closed for renovation and opened in Dec 2017.

Looking ahead, we note that Singapore hotel room supply is expected to grow only +1.2% in 2018, +2.5% in 2019, and +0.6% in 2020. Given the positive RevPAR growth CDLHT registered for its local assets despite the opening of seven hotels in 4Q17, we expect the RevPAR rebound in 2018 to be stronger than the ~2-5% growth that management expects.

For CDLHT’s overseas markets in 4Q17, the assets in the Maldives, Japan, and Cambridge, UK showed RevPAR declines while Germany was flat. Despite a 5.5% YoY RevPAR growth for the New Zealand hotel in 4Q17, NPI was lower YoY due to a weakened currency and higher local tax.

Bright Operational Outlook, But More Than Priced in

Given the RevPAR increase, we are more positive on the strength of the rebound in the local hospitality market this year. After adjusting our forecasts (we now have a +8% RevPAR growth for 2018) and increasing our nominal growth rate of dividends in the mature state from 1.5% to 2.0%, our fair value increases from S$1.555 to S$1.60.

Nonetheless, after a spectacular 33% rally in the last 12 months, we believe the riskreward for the REIT is skewed to the downside against the closing price on 26 Jan. CDLHT is trading at a FY18F yield of 5.3% as of the closing price on 26 Jan. We downgrade CDLHT from Hold to SELL.

Source: OCBC Research - 29 Jan 2018