CDL Hospitality Trusts

Kim Eng on 31 Oct 2012

3Q/9M 12 earnings inline. 3Q12 revenue at SGD36.1m (-1% QoQ, -1% YoY), was 24% of ours and consensus estimate. 9M12 revenue at SGD111.2m (+8% YoY), was 74% of ours but only 68% of consensus estimate. Management attribute this to slightly lower RevPAR (SGD209 in 3Q12, -4% QoQ, -1% YoY) achieved by the Singapore Hotels, as a result of the weaker macroeconomic environment impacting Singapore’s economy and hospitality sector. 3Q12 DPU at 2.72 SG-cts (-7% QoQ, -2% YoY) was 23% of ours and consensus estimates. 9M12 DPU at 8.42 SG- cts (+4% YoY) was 72% of ours and 68% of consensus estimates 

Portfolio review. Singapore 3Q12 hotel occupancy (excluding Studio M Hotel) at 88.6% was down 1.1ppt QoQ and 0.9ppt YoY. Average Room Rate (ARR) at SGD236 was down 2.5% QoQ and flat YoY. The corporate market, in particular the meetings and conference business, was affected by the economic malaise, leading to the relatively flat performance. Copthorne King's Hotel (second consecutive qtr of decline), Orchard Hotel (third consecutive qtr of decline) and M Hotel are all showing signs of moderation this quarter, with gross revenue down 6.4%, 1.7% and 3.7% QoQ respectively. Overall 3Q12 portfolio revenue has also softened, down 1.5% QoQ.  

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 2011-15 but hotel room supply (measured in terms of available room nights) will grow at 6.1% 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. We keep our visitor arrivals forecast intact with 14.2m and 16.2m arrivals in 2012 and 2015 respectively.  

Reiterate HOLD. With more hospitality trusts onboard (At FY12F P/B of 1.2x, scarcity premium likely to compress) and more hotel rooms coming on-stream, we would advise investors to stay cautious. The stock has run up 25.6% YTD and at FY13F DPU yield of 6.2% and yield spread of 490bps vis-à-vis historic average of 499bps, the stock has limited upside ahead in our view. Reiterate HOLD with unchanged TP of SGD1.97.