• Rapid spread of COVID-19 to more than 120 countries
• Growing pressure on RevPAR
• Lower FV estimate of S$1.09

COVID-19 Spread Intensified

COVID-19 is spreading rapidly across the countries. It now seems to be spreading much more rapidly outside China than within. As of 13 Mar, COVID-19 has spread to over 120 countries with more than 140,000 reported cases. Apart from China, the 3 countries with the highest number of confirmed cases are: Korea (8,086 cases), Italy (17,660 cases) and Iran (11,364 cases). Italy announced last week that the whole country is under lockdown amid soaring number of new cases and death tolls. At a media briefing, WHO declared COVID-19 a pandemic which means that we are likely to see higher transmission rate with more confirmed cases, and probably a prolonged outbreak.

Impact of COVID-19 Could be Larger Than Earlier Expected

On an industry average, the hotel’s occupancy rate in Singapore has dropped to ~30% in MTD March which saw a further decline from February’s occupancy rate of ~40%. Recall that during the SARS outbreak, visitor arrivals to Singapore fell 19.0% YoY and Singapore hotel’s RevPAR dropped ~19% YoY in 2003. However, given higher travel demand and higher contributions of Chinese tourists to Singapore’s tourism now, as well a potential longer outbreak, we are expecting the declines to be likely more severe than that of the SARS.

Singapore Tourism Board (STB) estimated that the fall in tourist arrivals to Singapore could fall 25-30% in 2020. As we highlighted in our earlier report, Singapore is CDLHT’s key and best performing market (~62.3% of FY19 NPI) whereby Chinese tourists contributed ~10% of CDLHT’s Singapore business. With the escalation of COVID-19, we believe that CDLHT’s performance could be badly hit with an estimated ~30-40% decline in RevPAR for CDLHT’s Singapore hotels.

Adjusting DPU Forecasts for FY20/21F Down by 17%/3%

Separately, CDLHT’s hotels in Europe contributed ~18% of FY19 NPI, with 2% from Italy. As the situation continues to evolve rapidly in Europe, the hotels business would be heavily impacted. As compared with service residences, hotels could face a larger impact due to its shorter-stay profile and the focus on leisure travelers. In light of the impact of COVID- 19, we adjust our DPU forecasts for FY20/21F down by 17%/3%, and increase our COE from 7.2% to 9.4%, while decreasing the terminal growth rate and risk-free rate from 2.0% to 1.55%. After adjustments, our fair value estimate decreases from S$1.62 to S$1.09.

Source: OCBC Research - 16 Mar 2020