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CDL Hospitality Trusts (CDREIT SP) Summary

Core Content

CDL Hospitality Trusts (CDREIT SP) is a Singapore-based Real Estate Investment Trust (REIT) with a current share price of SGD1.62 and a target price of SGD1.75, indicating an expected 8% increase. The company has a market capitalization of USD1.2B and an average daily trading volume of USD1M. The analysis suggests a "BUY" recommendation, based on improved outlook for the hospitality industry in FY14.

Main Viewpoints

• Positive Outlook for FY14: The hospitality sector is expected to experience a tactical recovery in FY14, with hotel room supply growing at a 5.7% CAGR from 2013 to 2015, matching demand growth. Corporate bookings are anticipated to improve due to the strengthening USD against SGD.

• RevPAR Trends: RevPAR is expected to rise 3% in FY14 after a 2% decline in 2013, but it will slide by 1% in 2015 and 2% in 2016. The company forecasts visitor arrivals to reach 16.4m in 2014 and 17m in 2015, in line with Singapore Tourism Board (STB) targets.

• Supply Dynamics: New hotel room supply is expected to decrease in 2014 to 2,037 rooms, compared to 3,766 in 2013. This reduction in supply is seen as a positive factor for the industry, offering a reprieve and potential for improved RevPAR.

• Segmental Performance: In 2013, luxury hotels performed well with an 88% occupancy rate and higher room rates, while other segments saw declines in both occupancy and room rates. CDLHT's performance is expected to benefit from this trend.

• Tourism Growth: Singapore aims to double the contribution of tourism to GDP to 8% by 2015. The STB has set targets for tourism receipts to reach SGD30b and visitor arrivals to reach 17m by 2015, with an active push to limit downside risks.

• Acquisition Opportunities: CDLHT has a low gearing of 29.7%, providing debt headroom of SGD399m before hitting the 40% limit. There are potential acquisition opportunities in Asia, particularly with M&C Hotels, which operates hotels in major cities like Seoul and Beijing.

Key Information

Financial Highlights (FYE Dec)

Key Metrics

Tourism and Hotel Supply

• Tourist Arrivals (2013-2015): Expected to grow at 4.8% CAGR, reaching 16.4m in 2014 and 17m in 2015.
• Hotel Room Supply (2014-2016): 8,096 new rooms from known projects, with 2,037 coming on-stream in 2014, significantly less than the 3,766 in 2013.
• Supply Breakdown (2014):
  • Luxury: 14.8%
  • Upscale: 35%
  • Midscale: 47%
  • Economy: 8%

Strategic Events in FY14

• Biennial Events:
  • Singapore Airshow (Feb 11-16)
  • Food & Hotel Asia (Apr 8-11)
  • WasteMET Asia Exhibition and Conference (Jun 2-4)
• Annual Events:
  • CommunicAsia (Jun 17-20)
  • Formula One Grand Prix (Sep 19-21)
  • WTA Championships (Oct 17-26)

REIT Performance

• CDLHT's share price has corrected by 18% since May 2013.
• The stock currently trades at a 1% discount to book value.
• The company is seen as a key beneficiary of the improved hospitality outlook.
• The target price remains at SGD1.75, with a 15.5% expected total return.

Conclusion

The outlook for the hospitality sector in Singapore is turning more positive, with CDLHT well-positioned to benefit from this trend. The reduction in new hotel room supply and the anticipated increase in tourist arrivals are seen as catalysts for improved performance. With a low gearing ratio and the potential for strategic acquisitions, the REIT is recommended as a "BUY" with a target price of SGD1.75.