CDL  Hospitality Trusts'  3Q14/9M14 DPU dropped  1.1%/2.4% to 2.61/7.86 cents  respectively.  We  assume  coverage  with  a  NEUTRAL  and  DDMderived  SGD1.76  TP  (from  SGD1.63),  a  3.5%  upside  from  its  current share price. With headwinds facing both the demand and supply side of the tourism industry  not abating, we see limited growth prospects over the next two years for this stock.  

Results  in  line,  9M14's  distribution  per  unit  (DPU)  at  73%  of  our forecast.  CDL  Hospitality  Trusts  posted  11.9%/11.3%  YoY  rise  in 3Q14/9M14 revenues  to SGD40.1m/SGD121.7m  respectively,  aided  by its Maldives resort acquisitions. DPU dropped 1.1% to 2.61 cents (3Q14) and 2.4% to 7.86 cents (9M14), partly on weaker Chinese tourist arrivals to Singapore,  the  Claymore Link  mall's ongoing refurbishments  and  the Maldives'  Jumeirah  Dhevanafushi  resort's  operating  expenses  not matched  by  its  topline.  Management  earlier  attributed  this  on seasonality,  as 2Q/3Q  was  the resorts  weakest quarters, with  >70% of 
revenue  contribution  coming  in  1Q/4Q  on  higher-yielding  tourists  from China,  Europe  and  Russia.  The  trust's  YTD  Singapore  hotels  revenue per available room (RevPAR) fell 1.6% YoY to SGD188, as the corporate and meetings business remained affected by tight travel budgets and the drop in Chinese tourists post China's "forced shopping" ban in Oct 2013.

Tourism outlook unlikely to turn around in 2014. For the first 21 days of October, RevPAR for Singapore hotels decreased by 3.5% ,  vis-à-vis the same period in 2013,  despite the 2014 Women's Tennis AssociationChampionships being held here. Along Orchard Road, Shangri-La Hotels and Resorts opened the 502-room Hotel Jen Orchardgateway on 15 Sep with an introductory room rate of SGD250/night.  Thus, we remain wary of the near-term competition of CDL Hospitality Trusts' Orchard Hotel.  

Eyeing  the  Maldives.  We  expect the Maldives portfolio,  ~10% of  total net  property  income  (NPI),  to  drive  the  major  bulk  of  the  trust's  4Q14 DPU.  Industry  room  inventory  will  probably  continue  to  grow  in Singapore  with  another  447  rooms  slated  for  opening  by  end-2014.  In 2015, an estimated 3,229 rooms are expected to open, further increasing room supply  by  5.7%  vis-à-vis  2014.  The  new  room  supply  is  likely  to perpetuate the competitive environment going into 2015. We forecast 1% DPU  CAGR  over  2013-2016.  We  assume  coverage  with  a  NEUTRAL call and a DDM-derived SGD1.76 TP (from SGD1.63).

 

In 3Q14, CDL Hospitality Trusts locked in a 14.7% YoY increase in revenue  to a total sum of SGD39.7m (3Q13: 34.6m)  from its overall hotel portfolio. The increment was mainly  boosted  by  its  Maldives  portfolio,  due  to  additional  income  stream  from  its latest acquisition  in Dec 2013, the  Jumeirah Dhevanafushi. On the Singapore front, the trust's  hotels locked in record occupancy rates of 92% (3Q13: 87.6%). However, this  was  offset  by  4.1%  lower  average  room  rates  of  SGD209  (3Q13:  SGD218),which resulted in a mere 0.5% increase in RevPAR of SGD192 (3Q13: SGD191). On a  YTD  basis,  CDL  Hospitality  Trusts'  occupancy  rose  1.4ppts  to  87.5%.  This  was offset, however,  by 3.2% lower average room rates of SGD212,  which  resulted  in a 1.6% drop in RevPAR to SGD188.

 

Source: OSK-DMG