• 4Q18 results within expectations
• Maldives to remain a drag for 1Q19
• FV increases to S$1.56

4Q DPU Down 2.1% YoY

CDL Hospitality Trusts' (CDLHT) 4Q18 results were within expectations. 4Q18 revenue dropped 5.4% YoY to S$38.4m, pulled down by a lack of contribution from the two divestments in Australia and the closing of Dhevanafushi Maldives Luxury Resort (DMLR) for renovations. DMLR is currently undergoing pre-opening preparation for its relaunch as “Raffles Maldives Meradhoo” in 2Q19. 4Q18 DPU dropped 2.1% YoY to 2.77 S cents.

On a full-year basis, FY18 DPU increased 0.4% YoY to 9.26 S cents or 104% of our full-year forecast. The difference with our forecast was due to S$13.0m in capital distributions made in FY18 (vs. S$5.7m in FY17), including S$7.3m made in 4Q18. This compares with our assumed amount of S$7.5m for FY18.

Excluding capital distributions, FY18’s distributable income of S$98.6m met 99% of our initial full-year forecast, which we consider within expectations.

Excluding Orchard Hotel, SG RevPAR Up 4.3% in 4Q18

In terms of operating metrics, CDLHT’s Singapore RevPAR increased 2.6% YoY in 4Q18 as the portfolio saw demand from Chinese and Indian leisure travelers, stable corporate demand was stable, and additional business from the ASEAN Summit. Excluding Orchard Hotel (which saw revenue loss due to renovations), CDLHT’s Singapore RevPAR increased by 4.3% YoY in 4Q18.

In addition, the REIT manger disclosed that CDLHT’s Singapore RevPAR increased by 5.1% YoY for the first 27 days of Jan 2019. Excluding Orchard Hotel, we estimate that this figure is around +6% YoY. The renovations of the meeting facilities and Grand Ballroom at Orchard Hotel are expected to complete in 1Q19 while the progressive refurbishment of the rooms in the hotel are expected to complete in 2Q19. Heavy disruption at Orchard Hotel is expected especially for 1Q19 due to the sound.

Things to Look Forward to in 2019 But Still Expecting a Soft 1Q

For 2019, while we are excited on the positive SG RevPAR growth we expect to see for the fullyear (e.g. 3-5% range), we are worried on the likely drag in 1Q19 from the closure of DMLR as well as the asset enhancement initiatives at Orchard Hotel.

After adjustments, our fair value increases from S$1.45 to S$1.56 as our cost of equity drops from 8.0% to 7.5%. As at 29 Jan’s close, CDLHT is trading at 5.8% FY19F dividend yield. Beyond 1Q19, we anticipate

1. the opening of the rebranded Raffles Maldives Meradhoo Resort in early 2Q19, and
2. improved contributions from Orchard Hotel post refurbishment.

Post-renovations, Orchard Hotel will be one of only four hotels in Singapore with a ballroom that can accommodate 1K or more guests. For the reasons mentioned earlier, we believe 1Q19 will look soft on a YoY basis and currently see an opportunity to sell into strength based on share price as at 29 Jan 2019. We maintain HOLD on CDLHT.

Source: OCBC Research - 30 Jan 2019