CDL Hospitality Trusts

OCBC on 27 Aug 2012

Hotels in Singapore may be seeing lower average room rates in 3Q12 on a YoY basis, according to a hospitality industry player we spoke to. But a decline would not be surprising as 3Q11 was exceptionally strong; 3Qs are traditionally weak quarters. CDLHT’s hotels are best characterized as being in the Mid-tier and Upscale categories, and should perform at least in line with the general market. The prospects of CDLHT are still favorable in the longer term. We calculate that the hotel room supply for Mid-tier and Upscale categories as a whole is expected to grow at 4.6% p.a. for 2012-2014. This compares favorably to hotel room demand, which we expect to grow at 6.4% p.a. for 2012-2015. As there might be better buying opportunities after the 3Q12 results are out, we maintain our HOLD rating for now.

Possibly soft 3Q12 for Singapore hotels
Hotels in Singapore may be seeing lower average room rates in 3Q12 on a YoY basis, according to a hospitality industry player we spoke to. For example, a 5-star hotel may be charging S$250++ while they may have charged S$300++ a year ago. In percentage terms, the decline might be less pronounced for higher-end hotels. CDLHT’s hotels are best characterized as being in the two middle tiers (Mid-tier and Upscale) based on their historical RevPAR figures, and should perform at least in line with the general market.

3Q11 was particularly strong
But a YoY decline for the hospitality sector would not be surprising as 3Q11 was exceptionally strong; 3Qs are traditionally weak quarters. Pickup among hotels for the period of the F1 (21st-23rd Sep) has apparently been poor so far except for hotels in the Marina Bay area. The pricing power of the hotels relative to walk-in customers and corporates may have declined because of reduced booking visibility but this may be buffered by increased pricing power versus certain travel agents.

Demand to surpass supply
According to CBRE, hotel room supply in Singapore is estimated to grow at 4.6% p.a. for 2012-2014 from 49,719 rooms in 309 hotels as of end 2011. CBRE estimates that the spread of hotel rooms by categories as of end 2011 was 14% Economy, 29% Mid-tier, 46% Upscale and 11% Luxury. Based on this, we calculate that the 2012-2014 growth rates of hotel room supplies by tiers are as follows: Economy (7.2% p.a.), Mid-tier (6.4% p.a.), Upscale (3.4% p.a.), Luxury (1.6% p.a.). As a whole, the Mid-tier and Upscale categories are expected to grow at 4.6% p.a., in line with the general market and comparing favorably to hotel room demand, which we expect to grow at 6.4% p.a. for 2012-2015.

Maintain HOLD
We keep our fair value of S$2.06 on CDLHT. As there might be better buying opportunities after the 3Q12 results are out, we maintain our HOLD rating for now.