CDL Hospitality Trusts

OCBC on 23 May 2012

The Singapore Tourism Board aims to grow tourism’s GDP contribution from 4% to as much as 8%. It has also recently been emphasising a focus on attracting quality tourists who spend more, as opposed to simply trying to grow the absolute number of tourists. This strategy would likely continue to pay off for high-end hotels, which have outperformed budget hotels in 1Q12 (RevPAR growths of 14.5% and 5.5% YoY respectively). We have updated our in-house hotel database and foresee that for 2012-2015, growth in demand for hotel rooms of 6.4% p.a. will comfortably outstrip supply growth of 3.7% p.a., with high-end hotels facing better supply-side dynamics. We maintain a BUY rating on CDLHT and our fair value of S$2.04.

Growing influence of hospitality
We think it is notable that the Singapore Tourism Board (STB) is targeting a possible doubling of tourism’s GDP contribution to 8%. In 2011, tourism accounted for 4.1% of GDP, substantially higher than the 3.6% in 2010 and 2.4% in 2009. In 1Q12, real GDP grew 1.6% YoY while the Accommodation & Food Services sector (a rough proxy for tourism) grew faster at 4% YoY. For 2012, STB is aiming for S$23-24b in tourism receipts, implying a 3.6-8.1% YoY increase. The target growth rate, which STB has indicated could be revised upwards, is significantly higher than the official 2012 GDP growth forecast of 1-3% and highlights the increasing importance of tourism.

Stronger performance for high-end hotels
The STB has recently highlighted that it wants to focus on attracting quality tourists who spend more, as opposed to simply trying to grow the absolute number of tourists. This emphasis will probably continue to benefit high-end hotel players like CDLHT. For 1Q12, tourist arrivals jumped 14.6% YoY to 3.5m. Based on preliminary figures, high-end Singapore hotels showed RevPAR growth of 14.5% in 1Q12, outperforming budget hotels (+5.5% YoY). The robust RevPAR growth for high-end hotels was supported by larger increases in rental rates. We believe that our 7.5% RevPAR growth rate assumption for CDLHT’s Singapore hotels in 2012 is not aggressive.

Favorable supply dynamics for high-end hotels
Updating our in-house hotel database, we forecast that overall hotel room supply will increase by 3.7% p.a. for 2012-2015, comfortably outstripped by hotel room demand growth of 6.4% p.a. High-end hotel room supply will grow by 3.0% p.a., slower than the 5.3% p.a. for budget hotels. The temporary closing of Pan Pacific Singapore for renovations from Apr to Aug has also taken 778 high-end rooms off the market.