CDL Hospitality Trust

OCBC on 7 June 2012

On a worldwide basis, Singapore commands fairly high hotel room rates, but still has substantial room to grow in comparison to other quality destinations worldwide. Travelers from China, India, Australia, HK and the UK, which form half of the top ten places of origin for travelers to Singapore in 2011, are willing to pay 24-61% more for a hotel room in the most expensive destinations versus Singapore. Regional low-cost carriers will continue to further enhance the relative affordability of Singapore hotels and increase their ability to raise rates. We maintain a BUY rating on CDLHT and our fair value of S$2.04.

How expensive are Singapore room rates?
On a worldwide basis, Singapore commands fairly high hotel room rates. To study the relative affordability of Singapore hotels we have examined the average hotel room rates paid by travelers from different places of origin to destinations worldwide. Travelers from China, India, Australia, HK and the UK, which form half of the top ten places of origin for travelers to Singapore in 2011, are willing to pay 24-61% more for a hotel room in the most expensive destinations versus Singapore. For example, travelers from China paid an average of 40% more for a hotel room in London in 2011 versus one in Singapore.

Rates can continue rising
As Singapore continues to become a more attractive travel destination, especially for its trio of MICE, gaming and medical tourism, the premium that the most expensive hotel destinations command over it could shrink substantially with time. Additionally, the nine out of 10 top places of origin for visitors to Singapore are located in Asia-Pacific. With the continued rise of low-cost carriers (LCCs) in this region, intra-Asia travel will increase and people can afford to spend more on hotel rooms. For many, traveling to Singapore is already a lot cheaper than travelling to New York or Venice.

Welcoming long-haul LCC visitors
Singapore’s first long-haul LCC, Scoot, will be making daily flights to Tokyo and Taipei from 3Q12. Scoot just completed its maiden flight to Australia and will begin flights to Gold Coast next week. The supply-demand dynamics for Singapore hotels remains positive. We project that hotel room supply will increase by 3.7% p.a. for 2012-2015 while hotel room demand will grow faster at 6.4% p.a.

Maintain BUY
CDLHT is one of the few highly liquid, close-to-pure-plays for the Singapore hotel sector. We maintain our BUY rating on CDLHT and our RNAV-derived fair value estimate of S$2.04.