STI : 3,167.43
Price Target : 12-Month S$ 1.84
Turnaround in RevPAR
• RevPAR outlook brightens in 2014
• Acquisition-driven catalysts and upside to earnings
• BUY, TP of S$1.84 maintained
Sequential improvements in RevPAR from 4Q13. Given the year-end peak season, we expect CDL Hospitality Trusts (CDREIT) to post sequentially stronger revenues from 4Q13.
This is likely to come from a few fronts: (i) RevPAR for Singapore hotels as guided by management in 3Q13 results that the first 27 days in Oct’13 declined by a smaller 4.2% y-o-y; and (ii) Income from banquet services, which is understood to be robust (esp. Orchard Hotel and Grand Copthorne Waterfront). Moreover, its corporate travel-focused hotels are also likely to see improved bookings visibility, with a brighter outlook for corporate travel and MICE events come 2014.
Conservative balance sheet implies headroom for acquisition. Earnings surprise is likely to hinge on utilising its under-leveraged balance sheet (gearing of 29%) to acquire selectively across the region. Among the many target hospitality markets in the region, countries that the manager is interested in include Japan and Maldives.
BUY, TP S$1.84 based on DDM. We believe that CDREIT is attractive at current levels of 1.0x P/BV and forward yields of c.6.7%-6.9%, compared to the S-REIT peer average. Its portfolio of hotels is valued conservatively at an average cap rate of c.6.5%, implying valuation upside when compared to peers average and recent hotel physical market transactions.
Publish date: 02/01/14