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Broker's take: OCBC downgrades CDLHT to 'hold' on growing concerns over pandemic

orchard hotel - cdlht.jpg
Singapore properties in CDLHT's portfolio include Orchard Hotel (above), Grand Copthorne Waterfront Hotel and M Hotel.

AMID the intensifying spread of the novel coronavirus, OCBC Investment Research has lowered its rating on CDL Hospitality Trusts (CDLHT) to "hold" from "buy" previously, and cut its fair value estimate on the counter to S$1.09 from S$1.62. 

As at 1.10pm on Monday, units in CDLHT were trading at S$1.04, down S$0.08 or 7.1 per cent.

"From our channel checks, the average hotel's occupancy rate in Singapore has dropped to about 30 per cent in March to date, which saw a further decline from February's occupancy rate of about 40 per cent," wrote OCBC Investment Research in a note on Monday morning.

Given the escalation of Covid-19, the research team believes that CDLHT's performance could be "badly hit" with an estimated 30 to 40 per cent decline in revenue per available room (RevPAR) for its Singapore hotels.

In light of the impact from the virus outbreak, OCBC on Monday also reduced its forecasts for CDLHT's distribution per unit by 17 per cent for fiscal 2020 and by 3 per cent for fiscal 2021.

During the Sars (severe acute respiratory syndrome) outbreak, visitor arrivals to Singapore fell 19 per cent, and Singapore hotels' RevPar dropped about 19 per cent year-on-year in 2003.

However, with Covid-19 this time, the declines are likely to be more severe than that of Sars, due to higher travel demand and higher contributions of Chinese tourists to Singapore's tourism now, OCBC said.

The Singapore Tourism Board has estimated that tourist arrivals to the Republic could fall between 25 to 30 per cent in 2020.

According to OCBC, Singapore is CDLHT's key and best performing market, accounting for 62.3 per cent of its net property income (NPI) for fiscal 2019, with Chinese tourists contributing about 10 per cent of CDLHT's Singapore business.

As CDLHT's overseas markets, Europe contributed about 18 per cent of NPI for FY2019, with 2 per cent coming from Italy.

"As the situation continues to evolve rapidly in Europe, we expect to see growing pressure on RevPAR," OCBC wrote.

Meanwhile, within the Singapore hospitality real estate investment trust space, OCBC on Monday maintained its "hold" call on Far East Hospitality Trust but lowered its fair value estimate on the counter to S$0.52 from S$0.65.

The research team also maintained its "buy" rating on Ascott Residence Trust, while decreasing fair value estimate to S$1.11 from S$1.41 previously. 

Covid-19 is now spreading rapidly across countries, with the spread more rapid outside China than within, OCBC noted.

As at Monday, the virus has spread to over 120 countries, with more than 169,000 total reported cases. Apart from China, the three countries with the highest number of confirmed cases are Italy, Iran and South Korea. Last week, Italy announced that the country is under lockdown amid the soaring number of new cases and death tolls.