• Down 9.1% since our downgrade
• Unit prices now more reasonable…
• But not yet attractive as at 10 Aug

Down 9.1% Since Our Sell Call

Since our downgrade on CDL Hospitality Trusts (CDLHT) from Hold to Sell on 30 Jul till 10 Aug’s close, the REIT’s unit price has dropped 9.1% in two weeks. Including its dividend distribution, the REIT has posted a total return of -6.5%, versus the STI’s -0.7% or the FSTREI’s -0.4%.

SG: Expecting a More Robust RevPAR Pickup in 2019

As mentioned in our last report, we continue to believe CDLHT’s SG-heavy portfolio remains well-poised to ride the hospitality upcycle. However, we expect to see much more muted DPU growth in the next half-year with a more robust pick-up in SG RevPAR arriving only in FY19.

When we take a look at peers, we believe Far East Hospitality Trust (FEHT) will outperform operationally

1. given that its hotel assets operate predominantly within the mid-tier segment (versus CDLHT’s higher-end assets) and
2. given that FEHT had a rather low base in FY17.

Recall that for 2Q18, FEHT posted a 3-4% YoY RevPAR growth for its hotel portfolio (excluding Oasis Hotel Downtown), as compared to the -0.9% RevPAR growth posted by CDLHT’s SG portfolio and the -0.5% growth posted by OUE Hospitality Trust’s Mandarin Orchard Singapore.

Not Yet Attractive, But Now at a More Reasonable Unit Price…

Looking at the rest of the portfolio, we also expect CDLHT’s New Zealand and Maldives assets to be a drag in 2H18 – the former because of its high base in FY17 and the latter given that commencement of upgrading works for Dhevanafushi Maldives are expected to last till its re-opening in 4Q18.

Our forecasts remain unchanged since our last update. As of 10 Aug’s close, CDLHT is trading at a 6.4% FY18F yield, or ~0.6 std deviation below its 5 year mean.

We see a more reasonable risk-reward for the REIT as at 10 Aug, while not yet attractive. We upgrade CDLHT from Sell to HOLD with an unchanged fair value of S$1.42.

Source: OCBC Research - 13 Aug 2018