• CDLHT's 9MFY18 DPU of 6.49 Scts was below expectations at 70% of our full-year forecast and 67% of the consensus number.
• Performance was mainly affected by the Maldives (due to resort closure), Australia (divestments) and New Zealand (high base effect last year).
• Maintain ADD with a lower Target Price. We expect 2019 to be a better year.

9MFY18 results review

• CDL Hospitality Trusts (CDLHT)'s 9MFY18 net property income (NPI) declined 3.1% y-o-y, while DPU increased 1.6% to 6.49 Scts, which was below expectations.
• The weaker-than-expected DPU was mainly due to higher-than-expected marketing expenses for the rebranding of Dhevanafushi Maldives Luxury Resort (DMLR) and higher interest expense.
• 9MFY18 NPI was dragged down by Singapore (-0.6% y-o-y), Maldives (-57.4% y-o-y), Australia (-31.6% y-o-y) and New Zealand (-10% y-o-y). Singapore operations reported a decline of 0.6% in NPI on the back of a slightly weaker RevPAR (-0.1% y-o-y), mainly due to the renovation of Orchard Hotel which commenced in Jul 2018.
• In 3QFY18 RevPAR declined 0.3% y-o-y. Excluding Orchard Hotel, RevPAR would have been increased by 1.3% y-o-y.

The performances of overseas markets

• The weaker 9MFY18 NPI from the Maldives was due to the closure of DMLR from 1 Jun to rebrand the business.
• Australia declined due to the divestment of Mercure Brisbane and Ibis Brisbane in Jan 17 and the weaker A$.
• New Zealand was weaker due to the absence of sporting events which was present in 1HQ17, and weaker NZ$.
• On the positive side, Japan reported positive NPI in 3QFY18 as many accommodation listings in Tokyo were temporarily suspended since Jun due to new regulations. This has alleviated some supply concerns.
• Germany’s NPI grew substantially mainly due to the acquisition of Pullman Hotel Munich on 14 Jul 2017.

4QFY18 should remain weak while 2019 will see recovery

• Excluding the effects of the Orchard Hotel renovation, we expect RevPAR in Singapore to see improvements going forward. We understand that Oct RevPAR was strong. However, this will be partially offset by the refurbishment of DMLR and The Lowry Hotel in the UK.
• All in, we are still expecting a relatively weak 4Q.
• In FY19F, revenue would be boosted by a stronger recovery in Singapore RevPAR, the completion of refurbishment of Orchard Hotel, the reopening of DMLR and potential acquisitions.

Reduce forecasts but maintain ADD

• Given the weak results, we lower our FY18-20F DPU by 5-6%, factoring in the higher marketing expenses for the rebranding of DMLR and interest expense.
• Despite the lower DDM-based target price (S$1.61), CDLHT remains our pick for 2019 due to its recovery story in 2019 and potential acquisitions.
• Downside risks could come from weaker-than-expected sector recovery and DMLR performance in 2019, while re-rating catalysts include better-than-expected ROI from acquisitions (we factor in one acquisition for FY19F).