• 3Q below expectations…
• But strong RevPAR growth in Oct
• FV increases to S$1.45

3Q DPU Down 4.8% YoY

CDL Hospitality Trusts’ (CDLHT) 3Q18 results were below expectations. 3Q18 revenue dropped 8.8% to S$50.0m while NPI dropped 10.2% to S$36.2m. After including a capital distribution of S$1.8m, 3Q18 DPU (after retention) dropped 4.8% YoY to 2.18 S cents to 22.6% of our initial fullyear forecast. The decline in NPI was mainly due to the absence of contribution from three properties – Mercure Brisbane and Ibis Brisbane (both divested in Jan 2018) and Dhevanafushi Maldives Luxury Resort, which has been closed since Jun 2018 for renovations (expected to complete by year-end).

SG, UK and NZ also saw lower NPI YoY. On the other hand, we saw higher NPI from Pullman Hotel Munich, Japan Hotels, and Claymore Connect.

SG RevPAR Down 0.3% in 3Q18, But Up 7.2% First 29 Days of Oct

Singapore’s contribution was affected by Orchard Hotel’s AEI and 3Q18 SG RevPAR dropped 0.3% YoY to S$165. Excluding Orchard Hotel, RevPAR growth would have been +1.3% YoY which is inline with our expectations.

Surprisingly, SG RevPAR for the first 29 days of Oct was up 7.2% YoY. Management indicated that the high RevPAR growth was on the back of strong leisure and corporate demand. For instance, some hotels in their portfolio reached close to 100% occupancy during the period.

An Early Christmas?

Given the strong RevPAR recorded in Oct, we revise our expectations upwards for 4Q18 and FY19 accordingly. This is in contrast to FEHT’s portfolio, for which we expect a 4Q18 RevPAR performance closer to its 9M18 run-rate of ~3%.

Looking ahead, the rebranded Raffles Maldives Meradhoo Resort (formerly Dhevanafushi) is scheduled to open by the start of 1Q19, and we see CDLHT’s SG-heavy portfolio as being wellpoised to ride the hospitality up-cycle.

As we are projecting S$2m in capital distributions next year (significantly lower compared to the S$5.7m already announced in 9M18), FY19F DPU is expected to grow 5.0% YoY despite a projected 9.3% increase in NPI. After adjustments including raising our terminal growth rate from 1.5% to 2.0%, our fair value increases from S$1.42 to S$1.45.

We find CDLHT reasonably fairly priced as at 31 Oct’s close – CDLHT is trading at a 6.4% FY19F yield, slightly below its 5 year mean. Given that CDLHT’s gearing stands at a relatively low 33.8% as at 30 Sept 2018, we note that accretive acquisitions remain an upside risk to our forecasts. Maintain HOLD on CDLHT.

Source: OCBC Research - 1 Nov 2018