CDL Hospitality Trusts

Kim Eng on 30 Jul 2012

1H12 earnings inline. CDLHT’s 2Q12 revenue rose by 6% YoY to SGD36.6m, while the distributable income for unitholders decreased by 0.9% YoY to SGD28.2m, due to a higher one-off property tax refund of SGD3.3m by IRAS in 2Q11. 1H12 revenue at SGD75.4m, up 12.2% YoY, was 50% of our FY12 forecast but 45% of consensus estimate. 1H12 DPU at 5.70 SG-cts, up 6.7% YoY, was 47% and 46% of ours and consensus estimate respectively.

Portfolio review. Singapore 2Q12 hotel occupany (excluding Studio M Hotel) at 89.7% was up 1.2ppt QoQ and 1.6ppt YoY. Average Room Rate (ARR) at SGD242 was flat QoQ but up 4.3% YoY. However, Orchard Hotel and Copthorne King's Hotel are showing signs of moderation this quarter, with gross revenue down 7.5% and 3.7% QoQ respectively. Overall 2Q12 portfolio revenue has also softened, down 4.7% QoQ.

Not all hotels are equal. CDLHT Singapore YoY hotels performance has been lagging the overall hotel sector performance in terms of ARR growth (STB registered average year to May 2012 growth of 9.4% p.a.). We suspect that some of the islandwide growth are driven by the the two IRs, such as Marina Bay Sands which saw its 2Q12 ARR rise 29.9% YOY to USD348 (~SGD435) and occupancy up from 90.8% in 2Q11 to 99.1% in 2Q12. Genting Singapore also registered 1Q12 ARR growth of 20.7% YoY to SGD338 with occupancy up from 79% to 86%.

Expect slower tourism growth amidst a more competitive landscape. CDLHT derived ~80% of revenue/NPI from Singapore. We expect tourist arrivals to register 5.2% CAGR over 2010-15 but hotel room supply will grow at 6.3% CAGR, outstripping demand growth of 5.9%. ARR growth is project to slow from 15% in 2011 to 6% this year and 2%-3% over 2013-2015.

Reiterate HOLD. With more hospitality trusts coming onboard (At FY12F P/B of 1.3x, scarity premium likely to compress) and more hotel rooms coming on-stream, we would advise investors to stay cautious. The stock has run up 35% YTD and at FY12F DPU yield of 5.8% and yield spread of 415bps vis-à-vis historic average of 502bps, the stock has limited upside ahead in our view. We think investors would be better off with the more defensive industrial and retail REITs or cheaper hospitality alternatives such as OUE, which has further upside if it injects its assets into a hospitality trust. Reiterate HOLD; TP SGD1.97.