• 2Q results were soft
• Healthy start to 3Q…
• But valuations not yet compelling

DPU Drops 3.3% YoY in 2Q19; Helped by Higher Capital Distributions

CDL Hospitality Trusts (CDLHT) posted results that were slightly below expectation. 2Q19 revenue dropped 0.5% YoY to S$47.5m. On the back of flat NPI and higher finance expenses, 2Q19 distributable income (after retention) dropped 7.1% YoY to S$21.0m. However, due to higher capital distribution (S$4.1m in 2Q19 vs. S$3.2m in 2Q18), total distributable amount dropped by a milder 2.6% YoY to S$25.1m.

As a result, 2Q19 DPU dropped 3.3% YoY to 2.07 S cents or 23.2% of our initial full-year forecast. We consider this only slightly below expectations, as we expect CDLHT’s results to be stronger in 2H with the seasonally strong 4Q, the completion of the rejuvenation of Orchard Hotel, and the opening of Raffles Maldives Meradhoo.

Excluding Out-of-order Inventory, SG RevPAR Up 1.3% in 2Q19

During the quarter, Singapore RevPAR dropped 1.7% YoY, on soft overall demand and the absence of Food&HotelAsia. In addition, room refurbishment at Orchard Hotel and pipeworks at M Hotel and Copthorne King’s resulted in room displacement. Excluding out-of-order rooms, CDLHT’s SG RevPAR increased 1.3% YoY.

SG RevPAR Up 4.1% for First 28 Days of Jul

Looking ahead, the REIT manager disclosed that CDLHT’s SG RevPAR grew 4.1% YoY for the first 28 days of Jul 2019, which we find a promising start to 3Q. In addition, with the Orchard Hotel rejuvenation complete, we expect the performance of the SG portfolio to improve in the coming quarters.

As for Dhevanafushi Maldives Luxury Resort, the land villas were completed in May while the over-water villas will complete later in the year whereby the full opening of the resort will occur. While we look forward to its contributions as a rebranded property, we do note that the asset will take time to stabilize.

After adjustments and decreasing our risk-free rate from 2.3% to 2.0%, our fair value increases from S$1.54 to S$1.56. While we see more to look forward to operationally in 2H19, we do not find valuations compelling as at 30 Jul’s close. CDLHT is currently trading with a 5.3% FY19F dividend yield. We maintain HOLD on CDLHT.

Source: OCBC Research - 31 Jul 2019