SINGAPORE (June 14): UOB KayHian is maintaining its “buy” on CDL Hospitality Trusts (CDLHT) with $1.95 target given 2018 is shaping up into another record year for visitor arrivals in Singapore amid a slowdown in the supply of new hotel rooms.
UOB recently met with CDLHT management to hear the outlook on its operating performance, acquisition plans and the Singapore hospitality segment.
In a Thursday report, analyst Loke Peihao says the last few years have seen many new hotel openings which kept a lid on the pricing power of CDLHT's Singapore hotel rooms. With new room supply tapering to 1.3% CAGR in 2017-20 from 5.5% CAGR in 2014-17, Loke sees a return of pricing power to CDLHT's Singapore hotels.
Management also noted a pickup in occupancies on the back of strong corporate and leisure demand. The strong arrivals to be indicative of a boon to its leisure business as growth from Chinese and Indian outbound travellers comprises mainly tour-group types although CDLHT’s Singapore properties are geared towards the corporate crowd.
Through their internal tracking, management reckons that the corporate crowd accounts for about half of overall demand, and leisure travellers make up the remainder. According to Loke, room rates for the more lucrative corporate business can see a differential of 20-25% versus the leisure segment.
Visitor arrivals grew 7.1% y-o-y in 1Q18, setting Singapore on track for another record year of arrivals in 2018 after the historical high of 17.4 million arrivals in 2017. Management attributed the strong growth partially to active marketing efforts by the Singapore Tourism Board (STB) in second-tier Chinese and Indian cities, which are generating more repeat visits. In 1Q18, visitor arrivals from China and India grew 7.1% and 22.4% y-o-y respectively.
Meanwhile, management says there is minimal competition from home-sharing platforms in Singapore. According to UOB’s channel checks, home-sharing platforms make up only 3-4% of the total hotel room nights in Singapore. This is because high private home prices cannot generate sufficient rental yields from such short-stays. Socially, neighbours living in the same development may also resist sharing amenities with short-staying tenants.
“We believe Singapore's tough home rental rules are not likely to give way, even after several URA public consultations,” says Loke.
Looking ahead, management has flagged interest in overseas acquisitions, as Singapore assets are more tightly-held and hard to come by. In the longer term, CDREIT will still be Singapore-centric with AUM in Singapore not falling below 50% but management is keen on targets in European cities such as Budapest and Barcelona, and secondary UK cities like Cambridge and Manchester.
As at 11.25am, units in CDREIT are trading 3 cents lower at $1.60 giving it a DPU yield of 5.9% for FY18.
