• CDL Hospitality Trusts expects 1H20F DPU to decline 60-70% y-o-y.
• We cut FY20-22F DPU by 22-35% to factor in larger declines in RevPAR.
• Reiterate ADD, with a lower Target Price of S$1.20. The market appears to have priced in the potential downsides.

CDLHT's 1H20 DPU Could Decline 60-70% Y-o-y

• CDL Hospitality Trusts (SGX:J85)’s overseas operations are either closed on a temporary basis or operating at low occupancy rates except for its hotel in New Zealand. The occupancy rates of its Singapore and New Zealand hotels have been supported by isolation demand. Singapore hotel occupancy is also supported by demand from foreign workers affected by border closures.
• Management guided that while sentiment points to a start of a recovery in international travel demand in 2021, the situation remains fluid and there are much uncertainties on the recovery trajectory.
• CDL Hospitality Trusts guided that
  • income available for distribution (after retention) in 1H20 would be down 60-70% y-o-y,
  • DPU (after retention) for 1H20 would decline 60-70% y-o-y from 4.16 Scts last year, and
  • 1H20 total return after tax would be a marginally negative.
• The last part includes the one-off winding down costs arising from the divestment of Novotel Singapore Clarke Quay which was completed in Jul. Excluding this, CDL Hospitality Trusts would register a slight profit, it said.

Most Country Borders Remain Closed; FY20F Will be a Weak Year

• With the borders of most countries still closed to most foreigners, CDL Hospitality Trusts would have to rely mostly on domestic demand. In 2019, Singapore, New Zealand and UK accounted for ~79% of its revenue. With Covid-19 cases under control so far in these countries, CDL Hospitality Trusts could at least tap into the domestic demand there.
• We estimate that about 38% of CDL Hospitality Trusts's NPI in 2019 were from master lease income. However, the NPI from master lease income could be offset by the potential operating losses incurred by hotels under management contract. Our FY20F NPI forecast assumes 84% contribution from master leases.

CDLHT's FY20-22F DPU Cut by 16-36%; Reiterate ADD

• We reduce our FY20-22F DPU by 16-36%, factoring in lower RevPAR (from 40% previously to 60%).
• Our DDM-based target price, which is rolled over to FY21F, is reduced to S$1.20. Despite the weak outlook, we reiterate Add on CDL Hospitality Trusts as we believe the market has priced in the downside risks.
• CDL Hospitality Trusts is trading at 0.68x P/BV, below 12-year mean of 1.1x.
• Based on our sensitivity analysis, a 5% pts decline in FY21F RevPAR from the current assumed 66% y-o-y RevPAR growth will reduce our target price by 5-7% to S$1.15.
• Potential re-rating catalysts include capital distribution, better RevPAR/RevPAU, and earlier reopening of borders.
• Downside risks include prolonged border closures.

Source: CGS-CIMB Research - 20 Jul 2020