Singapore RevPAR Growth to Gain Traction

• CDL HOSPITALITY TRUSTS (SGX:J85)’s 3Q19 DPU at SGD2.09cts (-4.1% y-o-y, +1.0% q-o-q) was in line with consensus estimates but below ours.
• Singapore hotels saw a turnaround on stronger occupancies and a 4.9% y-o-y RevPAR improvement. We see this recovery gaining traction into 2020 on stronger corporate demand, supported by a constructive supply outlook and DPU visibility from earlier investments in Europe.
• Further deals are supported by low 36.3% gearing and > SGD450m in debt headroom.
• CDL Hospitality Trusts remains our top hospitality REIT pick with 16% total return upside to our DDM-based SGD1.80 Target Price (COE: 7.3%, LTG: 2.0%).

Stronger Singapore Performance

• Revenue and NPI for its Singapore hotels rose 4.8% y-o-y and 6.9% y-o-y after declining 4.3% y-o-y and 2.8% y-o-y in 2Q19. This was driven by better occupancies (up y-o-y from 90.8% to 91.4%) on the back of leisure demand, which pushed room rates up 4.3% y-o-y, resulting in a 4.9% y-o-y RevPAR improvement. Total visitor days rose 3.2% YTD, supported by a 1.9% y-o-y increase in visitor arrivals. 
• CDL Hospitality Trusts's RevPAR for the first 28 days in Oct 2019 increased 0.2% y-o-y; management sees positive RevPAR growth into 4Q, and for 2-3% y-o-y improvement in 2020. We expect this to be backed by a stronger corporate event calendar.

Overseas Assets Reported Lower NPIs

• CDL Hospitality Trusts's 3Q19 NPIs decreased in
  1. New Zealand (-19.5% y-o-y) as RevPAR fell 7.7% y-o-y during a low season and new supply
  2. Australia and UK (-5.9% y-o-y and - 7.7% y-o-y) mainly on weaker currencies
  3. Germany (-19.9% y-o-y) with an absence of trade fairs, and
  4. Japan (-40.1% y-o-y) as RevPAR declined 15.4% y-o-y on heightened Japan-South Korea tensions.
• Contribution from its Italy hotel acquired at end-2018 rose on 2.3% y-o-y RevPAR growth. Management is eyeing acquisitions in Singapore and Europe, given favourable supply-demand fundamentals.

Lower Singapore Supply Strengthens Recovery

• 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 2014-17. 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 - 30 Oct 2019