Lowered DPUs, Maintain BUY

• We cut CDL HOSPITALITY TRUSTS (SGX:J85)'s DPUs by 1-2% after a weaker-than-expected 1Q19 and following management’s lower (1-3% y-o-y) Singapore RevPAR growth guidance for FY19 (from 3-5% y-o-y).
• The year’s slower corporate event calendar has dampened near-term hotel RevPAR performance, whilst occupancies remain tight. Our investment thesis remains unchanged with RevPAR recovery supported by a constructive supply outlook, and DPU visibility from earlier investments into Germany and Japan.
• Further deals could be supported by low 35.1% gearing, SGD550m in debt headroom, and 3.0% yield spreads in Europe.
• CDL Hospitality Trusts remains our top hospitality REIT pick with 19% total return to our DDM-based SGD1.80 Target Price (COE: 7.5%, LTG: 2.0%).

A Weak Quarter in Singapore

• Singapore’s hotel revenues and NPI fell 8.0% y-o-y and 6.8% y-o-y, in line with a softer 2019 MICE calendar and the ongoing AEI at Orchard Hotel for the rooms and events space.
• RevPAR declined 2.4% y-o-y to SGD151 with occupancy stable at 87.3%. Excluding its out-of-order rooms inventory, RevPAR increased 0.4% y-o-y. While RevPAR for the first 25 days in Apr fell 3.5% y-o-y, management expects improvement at between 1-3% y-o-y into the coming quarters.

Overseas NPIs Down, RevPARs Up in Europe, Japan

• NPIs were weaker across CDL Hospitality Trusts' overseas markets, which were down between 5.9-11.4% y-o-y, except in Germany where it jumped 21.9% y-o-y and a contribution from its Italy hotel acquired at end-Nov 2018.
• The Pullman Hotel in Munich (6.5% of its AUM and 7.0% of total 1Q19 NPI) recorded a 23.9% y-o-y jump in RevPAR, backed by a healthy city events calendar and the BAU biennial trade fair.
• Management continues to see favourable yield-spreads in Europe supporting potential acquisition growth upside.

Singapore Recovery Intact on Low Supply

• We expect the recovery in Singapore to be driven by easing supply of 1.3% p.a. over 2018-22E versus 5.5% growth p.a. over 2014-2017.
• We see upside to DPUs as the sector is recovering after a four-year down-cycle and from a low base. A 1% increase in RevPAR assumption from our base case adds 1.3% to our FY20 DPU estimates.

Source: Maybank Kim Eng Research - 2 May 2019