CDL Hospitality Trusts

CIMB Research on 29 April 2013

Q1's weak performance was in line with CDL Hospitality Trusts' (CDLHT) earlier muted guidance but the magnitude surprised. Distribution per unit (DPU) would have been lower if not for its recent purchase and refinancing savings. We see downside risks to revenues per available room (RevPARs) amid competition and weak corporate travel.

Q1 FY2013 DPU was below consensus and our forecasts due to weak local hotel performance, forming 23 per cent of our full-year estimate. We lower DPUs and our dividend discount model-based target price (discount rate: 8.0 per cent), given weaker assumed local RevPARs, offset by lower borrowing cost.

Downgrade from "neutral" to "underperform" on downside risks to RevPARs (target price: $1.94).

Q1 FY2013 DPU was down 3 per cent y-o-y and 7 per cent q-o-q due to weak local hotel performance and would have been weaker if not for its recent Maldives purchase and refinancing savings.

Weaker performance was in line with CDLHT's earlier muted guidance but the magnitude surprised. Local hotels' RevPAR slipped 7.9 per cent y-o-y due to lower occupancy (-1.2 percentage points to 87.0 per cent) and average room rate (-6.8 per cent to $219 per day) in Q1.

The y-o-y net property income decline was broad-based but sharper for Copthorne King (-23 per cent y-o-y, on lower room bookings from key accounts in the shipping and marine sector and large project groups) and Studio M (-15 per cent y-o-y).

Management guidance remains muted given tighter corporate travel budgets and bumper room supply in 2013. The leisure business helped to offset weaker corporate business but was insufficient due to lower rates.

RevPAR for the first 23 days of April 2013 was 7.9 per cent lower y-o-y, partly due to the absence of Food and Hotel Asia this year. Australian assets are also starting to experience some weakness although the impact has been softened by defensive lease structures. Angsana Velavaru (Maldives) was the only bright spot, registering 29 per cent y-o-y RevPAR growth in February to March 2013.

We now assume a 6-7 per cent y-o-y local RevPAR decline in 2013.

UNDERPERFORM