CDL Hospitality Trust braces for impact of Singapore rooms boom

New supply of 3,357 rooms threatens rates revival.

At least one Singapore hotelier must not be too happy about the expected completion of new hotel rooms this year. CDL Hospitality Trust, which recorded a 2.4% increase in DPU in 1Q, could face a more intense competition as the market digests the new supply of hotel rooms.

This is likely to limit any expected RevPAR upside to c.2-3% in FY14, says CIMB's analyst Pang Ti Wee.

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In 1Q14, CDL-HT’s top line and DPU grew by 15.3% and 2.4% yoy respectively.

RevPAR for the quarter increased to S$192 from S$187 in 4Q13, due to the stronger performance of its Singapore hotels, though this growth was dampened by more intensive competition as the market continued to digest the increased supply of 3,357 rooms.

The new portfolio in Maldives also boosted the top line by c.S$7.6m. This growth, together with a stronger performance of its New Zealand hotel, was nevertheless partly dampened by the weaker Australia portfolio performance, the weaker Australian currency, and the loss in income from the AEI at Claymore Link - scheduled to be completed in 4Q14.

Positive outlook expected to be dampened by new supplyWith an expected stronger recovery in corporate spending in FY14, we expect CDL-HT (c.55% of earnings from corporate spending) to benefit from this trend. Furthermore, earnings are likely to be further boosted by a fully packed calendar and multiple MICE events this year.

However, the potentially more intense competition as the market digests the new supply of hotel rooms is likely to limit any expected RevPAR upside to c.2-3% in FY14. With an expected stronger Singapore portfolio coupled with the stellar performance of its two hotels in the Maldives, we believe that CDL-HT’s earnings will continue to grow.