CDREIT: Results Remain Weak
(Neutral, SGD1.69, TP: SGD1.63)
CDL Hospitality Trusts’ gross revenue and net property income for 2Q13 softened to SGD35.6m (-2.9% y-o-y) and SGD32.6m (-4.4% y-o-y) respectively. The quarter’s DPU of 2.72 cents (-6.8% y-o-y) was in line with estimates, but deviated by -1.5% from our forecast. Due to the persistently weak outlook for Singapore’s hospitality sector, we remain NEUTRAL on the stock, with a lower TP of SGD1.63.
Earnings soften due to corporate spending cuts, fewer events. CDL Hospitality Trusts (CDREIT)’s weak 2Q13 earnings were mainly attributed to softer demand for hotel space versus a year ago, as corporations continued to cut travel budgets amid uncertain global economic conditions.
Stiffening competition in the hospitality industry resulting from the new supply of hotel rooms, together with the absence of the biennial Food & Hotel Asia event in April, dampened its hotels’ performance. This led to its 2Q13 revenue per available room (RevPAR) at its Singapore hotels declining 8.5% y-o-y to SGD193 (1H13 RevPAR: -8.1% y-o-y to SGD192).
Overseas income mitigates weaker earnings. Earnings at the group’s hotels in Australia also weakened as that country’s economy and mining sector turned sluggish. However, this was partly mitigated by the high proportion of fixed rent contributed by the group’s Australian properties. Meanwhile, its hotel in the Maldives, Angsana Velavaru, performed well, registering a RevPAR growth of 27.5% y-o-y.
Earnings to stay feeble in upcoming quarters. Given CDREIT’s relatively high reliance on corporate spending (c. 60%), we expect earnings to remain soft as companies tighten their budgets in the upcoming quarters. In addition, with an expected supply of more than 4,500 new hotel rooms in 2013, 1,600 rooms in 2014 and 3,506 in 2015, we expect the competition within the hospitality sector to intensify.
Maintain NEUTRAL, with a lower SGD1.63 TP. In view of the weakerthan-expected results, which were partially offset by Management’s efforts to keep its occupancy rate high (88% in 2Q13), we remain NEUTRAL on the stock, but with a slightly lower DDM-based (COE: 9.8%, TGR: 2.0%) TP of SGD1.63, as we trim our topline forecast by 9.8%.
Publish date: 29/07/13