• Expecting AEI drag to continue into 2Q
• 5.6% yield as at 30 Apr
• FV dips from S$1.56 to S$1.54

DPU Drops 3.7% YoY in 1Q19

CDL Hospitality Trusts (CDLHT) posted a weak set of 1Q19 results as expected in our last company report and sector report. Revenue dropped 10.6% YoY to S$46.3m while NPI declined 10.7% YoY to S$33.8m. Distributable income (before retention) dropped 14.4% YoY to S$24.1m. After including capital distributions of S$3.6m, DPU dropped 3.7% YoY to 2.09 S cents or 22.4% of our initial full-year forecast. We consider this within expectations – as a reference, 1Q18 DPU contributed 23.4% to FY18 DPU.

Excluding Out of Order Inventory, SG RevPAR Up 0.4% in 1Q19

Singapore RevPAR dropped 2.7% YoY, affected by 1) the lack of events such as the biennial Singapore Airshow and the events surrounding the Chairmanship of ASEAN in 2018, 2) the closure of the Grand Ballroom and all meeting facilities as well as 8.6% of room inventory at Orchard Hotel for asset enhancements, 3) room inventory taken out due to pipe works at M Hotel and Copthorne King’s Hotel. Excluding the out of order inventory, Singapore RevPAR was up 0.4% in 1Q19.

AEIs Likely to Remain a Drag for 2Q

Looking ahead, the REIT manager disclosed that RevPAR for CDLHT’s SG hotels clocked a 3.5% YoY decline for the first 25 days of Apr 2019. We expect the asset enhancement initiatives at Orchard Hotel and Raffles Maldives Meradhoo to remain a drag for 2Q19.

Orchard Hotel completed the renovations of all its meeting facilities and the Grand Ballroom in 1Q19, but the phased refurbishment of 260 bedrooms is in progress and is expected to complete in Jun 2019. Renovation for the remaining 65 Club Floor Rooms will be completed in 3Q19.

The REIT Manager noted that they are also evaluating AEIs for other Singapore Hotels. As for Dhevanafushi Maldives Luxury Resort, we note that the rebranded land villas will be soft-opened in 2Q19 while the over-water villas will open later in the year. As a rebranded property, it will then take time for the asset to stabilize. In addition, there are plans to start AEI for the villas at public areas at Angsana Velavaru in 2Q 2019.

We pare down our Singapore RevPAR growth estimates for CDLHT. After adjustments and decreasing our risk-free rate from 2.7% to 2.3%, our fair value decreases from S$1.56 to S$1.54. As at 30 Apr’s close, CDLHT is trading at 5.6% FY19F dividend yield. We maintain HOLD on CDLHT.

Source: OCBC Research - 2 May 2019