ed: KK/ sa: PY, CS BUY (Initiating Coverage) Last Traded Price ( 31 May 2019): Bt5.95 (SET : 1,620.22) Price Target 12-mth: Bt7.25 (22% upside) Potential Catalyst: Rising occupancy, ADR growth, and new asset acquisitions Analyst Thailand Research Team +662 857 7823; [email protected]Nantika WIANGPHOEM, CFA +66 28577836 [email protected]Price Relative Forecasts and Valuation FY Dec (Btm) 2017A 2018A 2019F 2020F Gross Revenue 19.0 226 319 532 Net Property Inc 17.9 210 301 500 Total Return 16.5 180 213 301 Distribution Inc 16.5 186 218 314 EPU (Bt) 0.04 0.44 0.44 0.42 EPU Gth (%) nm 991 0 (4) DPU (Bt) 0.04 0.44 0.44 0.44 DPU Gth (%) nm 980 0 1 NAV per shr (Bt) 8.97 9.11 7.64 7.68 PE (X) N/A 13.5 13.5 14.0 Distribution Yield (%) 0.7 7.3 7.3 7.4 P/NAV (x) 0.7 0.7 0.5 0.8 Aggregate Leverage (%) 14.1 13.8 21.1 25.5 ROAE (%) N/A 4.9 4.7 5.5 Consensus DPU (Bt): N/A N/A N/A Other Broker Recs: B: 0 S: 0 H: 0 ICB Industry : Financials ICB Sector: Real Estate Investment Trust Principal Business: Hotel REIT Source of all dataon this page: Company, DBSVTH, Bloomberg Finance L.P. At A Glance Issued Capital (m shrs) 409 Mkt. Cap (Btm/US$m) 2,436 / 77.8 Major Shareholders (%) Dusit Thani Pcl 30.0 Social Security Office 25.4 Muang Thai Insurance Pcl 5.1 Free Float (%) 39.2 3m Avg. Daily Val (US$m) 0.02 DBS Group Research . Equity 4 Jun 2019 Thailand Company Focus Dusit Thani Freehold and Leasehold Real Estate Investment Trust Bloomberg: DREIT TB | Reuters: DREITu.BK Refer to important disclosures at the end of this report Attractive yields with long-term rental revenue • A REIT with three hotels under Dusit brand, located in prime tourist destinations of Thailand: Phuket, Hua Hin, and Chiang Mai • New asset in Maldives valued at c. Bt2.4bn will enlarge the REIT’s asset size to Bt6.6bn (54% increase), with DPU accretion • DREIT’s well-diversified portfolio and long-term fixed rents significantly lower its risk exposure • Initiating coverage with BUY call with DCF-based TP of Bt7.25, with IRR of 7.9% All assets under DREIT are flagship hotels in prime tourist destinations. DREIT initially invested in three hotels (2 freehold and 1 leasehold) - Dusit Thani Laguna Phuket, Dusit Thani Hua Hin, Dusit D2 Chiang Mai. Total asset value is at Bt4.2bn, with 652 guest rooms. DREIT is in the process of acquiring a new asset, Dusit Thani Maldives that has total of 95 villas. In our forecast, we assume the value of new asset c. Bt2.4bn, funded by raised capital of Bt1.7bn (at Bt5.5 per share) and additional debt of Bt0.7bn. These assets are flagship hotels in the Dusit Thani Group and are major revenue generators among Dusit-owned hotels. We believe in their growth potential, given the strong Dusit brand, the hotels’ strategic location in popular tourist destinations and within proximity to famous tourist attractions and shopping streets. Well-diversified portfolio with long-term rental revenue. The new asset will help diversify DREIT’s portfolio in terms of asset location and revenue concentration, given its different tourism seasonality and country-related risk exposure. DREIT will receive total fixed rents (including new asset) of c. Bt429m p.a. at Bt32/USD as security for its revenue until 2031 and c. Bt224m until 2040. This helps ensure its revenue streams and distribution to its investors and lower the impact of operational risks during a soft economy. Offering attractive yields and IRR of 7.9%. DREIT offers generous yields of 7.3% in FY19F and 7.4% in FY20F (assuming 97% payout). Valuation: DREIT is trading at 22% discount to NAV of Bt7.64 in FY19F. We value DREIT at Bt7.25, based on DCF valuation (WACC:7.5% with no terminal growth). Key Risks to Our View: A volatile economy and increase in supply could lower occupancy and rental room rates, affecting DREIT’s earnings and distribution yields (note that DREIT will receive fixed rent until 2040)
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ed: KK/ sa: PY, CS
BUY (Initiating Coverage)
Last Traded Price ( 31 May 2019): Bt5.95 (SET : 1,620.22)
Price Target 12-mth: Bt7.25 (22% upside)
Potential Catalyst: Rising occupancy, ADR growth, and new asset
Source of all dataon this page: Company, DBSVTH, Bloomberg Finance L.P.
At A Glance Issued Capital (m shrs) 409 Mkt. Cap (Btm/US$m) 2,436 / 77.8 Major Shareholders (%) Dusit Thani Pcl 30.0 Social Security Office 25.4 Muang Thai Insurance Pcl 5.1
Free Float (%) 39.2 3m Avg. Daily Val (US$m) 0.02
DBS Group Research . Equity
4 Jun 2019
Thailand Company Focus
Dusit Thani Freehold and Leasehold Real Estate Investment Trust Bloomberg: DREIT TB | Reuters: DREITu.BK Refer to important disclosures at the end of this report
Attractive yields with long-term rental revenue • A REIT with three hotels under Dusit brand, located in prime
tourist destinations of Thailand: Phuket, Hua Hin, and Chiang
Mai
• New asset in Maldives valued at c. Bt2.4bn will enlarge the
REIT’s asset size to Bt6.6bn (54% increase), with DPU accretion
• DREIT’s well-diversified portfolio and long-term fixed rents
significantly lower its risk exposure
• Initiating coverage with BUY call with DCF-based TP of Bt7.25,
with IRR of 7.9%
All assets under DREIT are flagship hotels in prime tourist
destinations. DREIT initially invested in three hotels (2 freehold and
Dusit D2 Chiang Mai. Total asset value is at Bt4.2bn, with 652
guest rooms. DREIT is in the process of acquiring a new asset,
Dusit Thani Maldives that has total of 95 villas. In our forecast, we
assume the value of new asset c. Bt2.4bn, funded by raised capital
of Bt1.7bn (at Bt5.5 per share) and additional debt of Bt0.7bn.
These assets are flagship hotels in the Dusit Thani Group and are
major revenue generators among Dusit-owned hotels. We believe
in their growth potential, given the strong Dusit brand, the hotels’
strategic location in popular tourist destinations and within
proximity to famous tourist attractions and shopping streets.
Well-diversified portfolio with long-term rental revenue. The new
asset will help diversify DREIT’s portfolio in terms of asset location
and revenue concentration, given its different tourism seasonality
and country-related risk exposure. DREIT will receive total fixed
rents (including new asset) of c. Bt429m p.a. at Bt32/USD as
security for its revenue until 2031 and c. Bt224m until 2040. This
helps ensure its revenue streams and distribution to its investors
and lower the impact of operational risks during a soft economy.
Offering attractive yields and IRR of 7.9%. DREIT offers generous
yields of 7.3% in FY19F and 7.4% in FY20F (assuming 97%
payout). Valuation: DREIT is trading at 22% discount to NAV of Bt7.64 in FY19F. We value DREIT at Bt7.25, based on DCF valuation (WACC:7.5% with no terminal growth). Key Risks to Our View: A volatile economy and increase in supply could lower occupancy and rental room rates, affecting DREIT’s earnings and distribution yields (note that DREIT will receive fixed rent until 2040)
Page 2
Company Focus
Dusit Thani Freehold and Leasehold Real Estate Investment Trust
SWOT Analysis
Strengths Weaknesses
• Global brand: The Dusit hospitality brand offers world class, high-quality services with Thai-oriented style. The hotels under DREIT are rated five-stars. The brand has strong customer loyalty, with impressive returning guests at the hotels.
• Prime locations: DREIT’s hotels are all located in popular tourist destinations of Phuket, Petchaburi, Chiang Mai, and Maldives, within proximity to various tourist attractions, city centres and shopping areas that offer guests various conveniences, especially in terms of travelling and transportation.
• Diversified portfolio: DREIT’s investment in overseas assets could reduce impact of seasonality in tourism and country-related risk exposure. The combined portfolio could stabilise revenue and diversify DREIT’s country-related risk exposure to Maldives, instead of only Thailand.
• Long-term rental revenue: Dusit Thani Management Co., Ltd. (DMCO), a company under Dusit Group, has leased back all of DREIT’s hotels, with revenue guarantee for existing and new assets of 14 years and 21 years, respectively. These stable revenue streams would be assuring to DREIT’s investors.
• Highly experienced lessee and property manager: Dusit Thani PLC (DTC) is a property manager and also a lessee of DREIT’s assets as it is an ultimate shareholder with 99.99% stake in DMCO (DREIT’s asset lessee). It is a company with more than 70 years of experience in the hospitality business, with distinguished expertise in hotel management.
• Tourism seasonality: DREIT’s revenue is dependent on tourism seasonality. Thailand’s lowest season is usually the 3rd quarter (rainy season), while Maldives lowest season is usually the 2nd quarter (stormy season). During these periods, DREIT’s revenue would drop and rise again during peak seasons (4th and 1st quarter of the year).
• REIT size: DREIT’s fund size is relatively small compared to other REITs in the market. Its initial assets of Bt4.2bn are less attractive to large institutional investors.
Opportunities Threats
• New asset acquisition: DREIT may acquire or invest in any hotels and properties from DTC or other asset sponsors. New assets would enlarge the REIT’s size and increase its earnings.
• Thailand as ASEAN transportation hub: Thailand is a major transportation hub in the region and is considered an important transit or layover point for tourists. This increases opportunities for tourists travelling to Thailand. Growing tourist arrivals is an important factor for the future of the hospitality business.
• Economic uncertainties: Any negative impact arising from the economy may affect DREIT’s income and earnings (for example, exchange rate fluctuations (THB/USD).
• Increasing supply: Any increase in number of accommodations may lead to a more competitive landscape and could affect the growth/earnings of DREIT.
• External risks: An uncontrollable risk that may affect the REIT’s operations and earnings (e.g. previous boat accident in Phuket and natural disasters).
Source: DBSVTH
Page 3
Company Focus
Dusit Thani Freehold and Leasehold Real Estate Investment Trust
Business Overview Converted to a REIT in FY17. DREIT was converted from Dusit
Thani Freehold and Leasehold Property Fund (DTCPF) to a
REIT in Nov 2017. The conversion was executed through a
new share issuance of 409.4m units and cash payment of
Bt433.9m to DTCPF shareholders. It utilised the share-
swapping method, with a 1:1 swapping ratio of DTCPF-to-
DREIT share unit and cash payment of Bt1.06 per DTCPF
share.
Initial assets of Bt4.2bn. DREIT initially invested in three hotels
under the DTC, its asset sponsor, property manager, and
lessee. The hotels are located in various tourist destinations
and cities in Thailand (Phuket, Hua Hin and Chiang Mai)
covering a total net leasable area (NLA) of 57,903 sqm, with
76% classified as freehold and 24% leasehold (based on total
asset value). The initial assets were valued at Bt4.2bn and
funded by raising Bt3.6bn (86%) capital and Bt0.6bn (14%)
for the ownership rights to Dusit Thani Lugana Phuket, a five-
star luxury hotel. It is located at 390 Sri Soonthorn Road,
Cheong Ta-Lay sub-district, Talang district, Phuket. It has 226
total available rooms, with NLA of 16,605 sqm. It had an
average daily rate (ADR) of Bt4,874, revenue per available
room (REVPAR) of Bt3,348, with an occupancy rate (OR) of
69% in FY18.
The hotel was under major renovations for two full years in
2017-2018. It is now back to its normal operations and
services since the beginning of 2019.
DREIT: Performance of Dusit Thani Laguna Phuket
Source: Company, DBSVTH
Dusit Thani Hua Hin (22-year leasehold). DREIT has invested
Bt857m for the leasehold rights to Dusit Thani Hua Hin, a
five-star luxury hotel with a remaining lease period of 22
years (until 2040). The hotel is located at 1349 Petchakasem
Road, Cha-Am district, Petchaburi. It has 296 total rooms
available, with NLA of 29,601 sqm. It had ADR of Bt3,015,
REVPAR of Bt2,041, and OR of 68% in FY18.
DREIT: Performance of Dusit Thani Hua Hin
Source: Company, DBSVTH
Dusit Thani D2 Chiang Mai (freehold). DREIT has invested
Bt376m for the ownership rights to Dusit Thani D2 Chiang
Mai, a five-star budget hotel. It is located at 100 Chang Klan
Road, Chang Klan sub-district, Muang district, Chiang Mai. It
has 103 total rooms available, with NLA of 11,697 sqm. It
had ADR of Bt2,61, REVPAR of Bt2,114 and OR of 81% in
FY18.
DREIT: Performance of Dusit D2 Chiang Mai
Source: Company, DBSVTH
Rental revenue of existing assets. Dusit Thani Management
Company Limited (DMCO), a subsidiary of DTC (with 99.99%
stake in DMCO), has leased back all of DREIT’s existing assets
(Dusit Thani Laguna Phuket, Dusit Thani Hua Hin, and Dusit
Thani D2 Chiang Mai). It has hired DTC as a property
manager. The rents are divided into; (i) fixed rent and, (ii)
variable rent.
3,73
4
3,69
0
3,57
0
3,15
5
3,01
5
2,34
0
2,49
5
2,33
5
2,03
4
2,04
1
63%68% 65% 64%
68%
0%
20%
40%
60%
80%
0
2,000
4,000
6,000
2014 2015 2016 2017 2018
(Bt)
ADR REVPAR OR (%)2
,71
7
2,8
03
2,9
08
2,8
32
2,6
17
1,9
99
2,3
58
2,3
71
2,2
25
2,1
14
74%
84% 82%79% 81%
20%
40%
60%
80%
100%
0
2,000
4,000
6,000
2014 2015 2016 2017 2018
(Bt)
ADR REVPAR OR (%)5,14
8
4,96
3
4,41
4
4,98
5
4,87
4
4,04
9
3,32
7
3,21
4
3,14
9
3,34
8
79%
67%73%
63%69%
0%
20%
40%
60%
80%
0
2,000
4,000
6,000
8,000
2014 2015 2016 2017 2018
(Bt)
ADR REVPAR OR (%)
Page 4
Company Focus
Dusit Thani Freehold and Leasehold Real Estate Investment Trust
(i) The fixed rent is Bt205m per annum, representing
revenue (earnings before interest, taxes, depreciation
and amortisation (EBITDA)) guarantee to DREIT for 14
years between 2018-2031 (end of contract between
DREIT and DMCO).
(ii) The variable rent of existing assets is equal to the excess
revenue (EBITDA) over the fixed rent. DREIT will receive
85% of the variable rent in 2018-2022 and 80% in
2023-2031. The balance (15% and 20%) of variable rent
in these respective periods will go to DMCO as a share of
revenue for the lessee.
In any case where the total revenue (EBITDA) of the existing
assets falls below Bt205m per annum, DMCO has agreed to
compensate for the revenue to at least equal the fixed rent.
From 2032 onwards, we believe that DREIT will extend/renew
its agreement with DMCO on the same terms and conditions
(fixed rent of Bt205m and 20% revenue sharing with its
lessee).
In our forecast, we assume fixed rent of Bt205m and variable
rent at 80% of excess revenue from 2032 onwards.
New asset (1st investment) of c. Bt2.4bn (40-year leasehold).
DREIT is in the process of acquiring a new asset, Dusit Thani
Maldives. The hotel started its operations in Feb-2012. It is
located on the Mudhdhoo Island, Baa Atoll, Republic of
Maldives, with 95 total villas available. It had ADR of USD526
(or Bt16,779 at Bt32/USD), REVPAR of USD444 (or Bt14,018
at Bt32/USD), and OR of 84% in FY18.
DREIT: Villa types at Dusit Thani Maldives
Villa units sqm
Beach villa 9 1,098
Beach villa with pool 10 1,220
Beach deluxe villa with pool 17 2,074
Water villa with pool 30 4,500
Ocean villa with pool 20 3,600
Two-bedroom family beach villa 5 2,000
Two-bedroom ocean pavilion 2 740
Two-bedroom beach residence 1 560
Three-bedroom beach residence 1 690
Total 95 16,482
Source: Company, DBSVTH
Page 5
Company Focus
Dusit Thani Freehold and Leasehold Real Estate Investment Trust
The new asset acquisition cost shall be no more than
Bt2,385.6m or USD74.55m at a fixed exchange rate of
Bt32/USD. This implies a 5% premium over the lowest
appraised value of Bt2,272m (or USD71m at Bt32/USD)
among two independent appraisers.
This new asset will be funded by raising capital of no more than 365m units of new share issuance, implying Bt2bn at a referred offering price of c. Bt5.5 per share. In our forecast, we assume that the new asset will cost Bt2,385m, funded by raised capital of Bt1,650m (assuming new share issuance of 300m units at Bt5.5 per share), and an additional debt of Bt735m.
DREIT: Performance of Dusit Thani Maldives
Source: Company, DBSVTH
Rental revenue of new asset. Dusit Maldives Management
Company Limited (DMS3) will sub-lease Dusit Thani Maldives
from DMS2. It will hire DTC as a property manager. DMS3
would be obliged to provide; (i) fixed rent and, (ii) variable
rent to DREIT.
(i) The fixed rent is USD7m per annum (or Bt224m at
Bt32/USD), representing revenue (EBITDA) guarantee to
DREIT for 21 years in 2020-2040.
(ii) The variable rent of the new asset is equal the excess
revenue (EBITDA) over the fixed rent. DREIT will receive
90% of the amount in; the balance 10% will go to
DMS3 as share of revenue for the lessee.
However, in any case where the total revenue (EBITDA) of the
new asset falls below USD7m per annum (or Bt224m at
Bt32/USD), DMS3 has agreed to compensate for the revenue
to at least equal the fixed rent.
From 2040 onwards, we believe that DREIT will extend/renew
its agreement with DMS3 on the same terms and conditions
(fixed rent of USD7m and revenue 10% revenue sharing with
its lessee).
In our forecast, we assume fixed rent of USD7m and variable
rent at 90% of excess revenue from 2040 onwards.
21,0
62
20,6
91
18,1
66
16,5
77
16,7
79
13,6
85
12,9
95
12,1
91
12,5
97
14,0
18
65% 63%67%
76%84%
0%
20%
40%
60%
80%
100%
0
10,000
20,000
30,000
40,000
2014 2015 2016 2017 2018
(Bt )
ADR REVPAR OR (%)
Page 6
Company Focus
Dusit Thani Freehold and Leasehold Real Estate Investment Trust
Background of new asset. Maldives’ government originally
granted a 48-year (from 2012-2059) leasehold rights of the
Mudhdhoo Island to DMS Property Investment Private Limited
(DMS), a subsidiary of DTC.
DMS then sold its remaining 40-year leasehold rights (2020
until 2059) to Dusit Maldives Investment Private Limited
(DMS2), a company incorporated under Maldives law and
owned by Dusit Thai Property PLC (DTPP) and MBK Hotel and
Resort Co., Ltd. (MBK).
DMS2 will then sub-lease this 40-year leasehold rights to
Dusit Maldives Management Company Limited (DMS3), a
company incorporated under Maldives Law and solely owned
by DMCO (lessee of DREIT’s existing assets). Therefore, it can
be implied that DMCO is a lessee of the new asset under
*Fixed exchange rate at Bt32/USD as agreed upon between DREIT and DMS2
Source: Company, DBSVTH
DREIT’s investment structure in new asset. DREIT will invest in
the remaining 40-year leasehold rights of Dusit Thani
Maldives through the acquisition of DMS2 (100% shares
outstanding) and offering shareholder loan to DMS2. The
total of DMS2 acquisition and shareholder loan will be the
same as the new asset acquisition, no more than Bt2,385.6m
or USD74.55m at a fixed exchange rate of Bt32/USD.
By investing in this new asset, DREIT will follow the process of
the following investment structure:
(i) To acquire 100% of outstanding DMS2 shares from
DTPP and MBK at no more than c. USD0.15m (or Bt4.8m
at a fixed exchange rate of Bt32/USD).
(ii) To provide DMS2 with shareholder loan of Bt c.
USD74.4m (or Bt2,380.8m at a fixed exchange rate of
Bt32/USD) to settle debts with DMS for the acquisition of
the leasehold rights of Dusit Thani Maldives.
As a result, DMS2 would become a subsidiary of DREIT.
Through DMS2, DREIT would obtain the leasehold rights of
Dusit Thani Maldives and the right to receive rental fees from
DMS3.
DREIT: Holdings structure of Dusit group
Source: Company, DBSVTH
Lessee
DMCO
Dusit Thani PLC (DTC)
99.99% shareholdings
Sub – Lessee
DMS3
100% shareholdings
Company
DMS2
REIT
30.02% shareholdings
Sub-lease
(i) 100% shareholdings(ii) Shareholder loans
Thailand
Maldives
AssetLease
Post-transaction
Page 7
Company Focus
Dusit Thani Freehold and Leasehold Real Estate Investment Trust
Tax payment. DREIT will be responsible for; (i) corporate income tax (CIT) on DMS2’s net profit, (ii) taxes on distribution received from DMS2 in terms of dividend, interests and principal repayment (see tax regime in the table below). The revenue (EBITDA) received from DMS2 are pre-tax revenue; therefore, the fixed rent of USD7m and variable rent are subject to CIT payment before being consolidated at DREIT level.
DREIT: Taxes Regime
Tax regime at DMS2 and DREIT
Step 1: Maldives
Company Taxable income/expenses Tax rate
DMS2
Rental income No
Less: property expenses No
Less: Interest payment (finance cost) No
Net (loss) profit 15%, CIT
Others
Principal repayment No
Dividend (from net profit) No
Step 2: Thailand
Company Taxable income/expenses Tax rate
DREIT
Dividend received from DMS2 No
Interest income received from DMS2 3.3%, specific business tax
Less: REIT management fee No
Net (loss) profit No
Others
Dividend (from net profit) WHT
Source: Company, DBSVTH
DREIT: Assets details
Existing asset New asset
Dusit Thani Laguna Phuket Dusit Thani Hua Hin Dusit D2 Chiang Mai Dusit Thani Maldives Total
Location Talang, Phuket Cha-am, Petchburi Muang, Chiang Mai Mudhdhoo Island, Baa Atoll
Going forward, DREIT should have opportunities to expand its
REIT size via acquisitions or investments in one or more of
DTC’s properties. DREIT also has an open-door policy for
potential asset acquisitions from other sponsors, or 3rd parties
other than DTC and its associates.
Financial Position Pre-acquisition low gearing ratio. At end-FY18, DREIT’s total
outstanding debt stood at Bt599m, with total asset value of
Bt4,382m. Its gearing ratio was 14% (vs. REIT’s maximum
gearing ratio of 35%).
Post- acquisition capex reserve. We anticipate that DREIT will
fund its new asset by raising Bt1,650m capital and additional
debt of Bt735m. We assume additional debts for total capital
expenditure (capex) reserve for existing and upcoming major
renovations of Bt1,310m during FY19-23F. We are
anticipating DREIT’s gearing ratio of 21% at end-FY19F,
rising to 33% at end-FY23.
DREIT: Outstanding debt & gearing ratio
Source: Company, DBSVTH
Key Risks
Economic volatility. Economic uncertainties may have an
impact on DREIT assets’ OR and ADR. Nowadays, politics
plays an important role in the economy. This could cause
more volatility in the economy (for example, US-China trade
war and the Britain’s withdrawal from the European Union
(Brexit)).
Nevertheless, DREIT’s assets in Phuket, Ching Mai, Hua Hin,
and Maldives are popular destinations among local and
foreign tourists.
This was proven by increasing tourist arrivals in all of DREIT’s
assets in 2018 (vs. 2017): Maldives +6.8%, Hua Hin +5.3%,
Chiang Mai +4.3%, and Phuket +2.6%. This included the
rising number of Chinese tourists, despite the US-China trade
war that started in early-2H18.
Thailand and Maldives are favoured countries among tourists,
compared to other neighbouring countries in the region.
These countries also have no major political issues with any
other countries. We believe that the tourism sector in
Thailand and Maldives will remain resilient despite various
economic and political uncertainties.
Increasing supply. We are also seeing growth in total
accommodations at some of DREIT’s assets (Chiang Mai,
Maldives and Hua Hin). The increase in total supply in these
particular areas may affect the OR and ADR of DREIT’s assets
and earnings.
However, we believe in DREIT’s asset quality, given the major
renovations recently, as well as annual maintenance and
minor renovations.
On top of that, Dusit is a well-established brand of over 70
years, with high brand awareness and customer loyalty. The
percentage of returning guests is 18% in Phuket, 18% in
Chiang Mai, 14% in Hun Hin and 8% in Maldives.
We believe that the with the Dusit brands offering global
standards and Thai-oriented services, DREIT should be able to
maintain its business operations and sustain its OR and ADR
in the long run.
Interest rate uptrend. Any spike in interest rates could be
negative for property funds/REIT sector. Risk-averse investors
may switch to bonds in response to narrower spreads as REITs
typically come with higher risks.
An increase in interest rates would raise the REIT’s finance
cost and lower its earnings and distribution. However, we
expect any rise of interest rates to have low impact on DREIT
given its low gearing of 14% at end-FY18 and c.19% at end-
FY19F.
599 1,
444
1,74
4
2,04
4
2,34
4
2,64
4 14%
21%24%
27%30%
33%
0%
10%
20%
30%
40%
-
1,000
2,000
3,000
4,000
2018 2019 2020 2021 2022 2023
(Bt m)
Oustanding debt Gearing ratio (D/TAV)
Page 19
Company Focus
Dusit Thani Freehold and Leasehold Real Estate Investment Trust
CRITICAL DATA POINTS TO WATCH
Critical Factors
New asset acquisition. DREIT is in the process of acquiring a new
asset, Dusit Thani Maldives. The acquisition of the new asset (1st
investment) is likely to be completed in 3Q19. Revenue contribution
from the new asset will filter through from 4Q19 onwards. The new asset’s value will be no more than Bt2,385.6m, at 5% premium of the lowest appraised value. In our forecast, we assume the new asset’s value of c. Bt2,385 to be funded by raised capital of c. Bt1,650m (assuming 300m newly issued shares at an offering price of Bt5.50 per share) and additional loans of Bt735m.
Post-transaction, DREIT’s total asset value will increase by c.54%
from Bt4.2bn to Bt6.7bn. DREIT will have a total of 4 hotels in
Thailand and Maldives. We anticipate the new asset acquisition to be
DPU accretive, from Bt0.42 (excluding new asset) to Bt0.44 (including
new asset) in FY20F.
Occupancy rates. Our OR assumptions for each of DREIT’s asset are
based on its location, tourist growth and historical OR. We have also
factored in major renovations for each asset that we expect to help
boost DREIT’s ORs. Our OR assumptions for each asset are as follows:
(i) Dusit Thani Laguna Phuket: OR of 75% in FY19-49 and
70% from FY50 onwards.
(ii) Dusit Thani Hua Hin: OR of 60-65% in FY19-40 (end of
lease term).
(iii) Dusit D2 Chiang Mai: OR of 70-80% in FY19-49 and 65%
from FY50 onwards.
(iv) Dusit Thani Maldives: OR of 80-85% in FY19-24, 70-75%
in FY25-49, and 65% in FY50-59 (end of lease term).
Rental reversion. In our forecast, we assume ADR growth peaking
after major renovations of each asset, rising along with inflation rates
thereafter. We have also taken into consideration the location and
quality of each hotel. In our forecast, we have assumed the following
ADR growths for each asset:
(i) Dusit Thani Laguna Phuket: ADR growth of 2-5% in FY19-
24, 2% in FY25-49, and no growth from FY50 onwards.
(ii) Dusit Thani Hua Hin: ADR growth of 0-8% in FY19-24, and
0-2% in FY25-40 (end of lease term).
(iii) Dusit D2 Chiang Mai: ADR growth of 2-8% in FY19-24, 1-
2% in FY25-49, and no growth from FY50 onwards.
(iv) Dusit Thani Maldives: ADR growth of 2-2.5% in FY19-49
Dusit Thani Freehold and Leasehold Real Estate Investment Trust
Cash Flow Statement (Btm)
FY Dec 2017A 2018A 2019F 2020F
Pre-Tax Income 16.5 180 218 314
Dep. & Amort. 0.0 0.0 0.0 0.0
Tax Paid 0.0 0.0 0.0 0.0
Associates &JV Inc/(Loss) 0.0 0.0 0.0 0.0
Chg in Wkg.Cap. (20.8) (27.8) 74.6 (50.9)
Other Operating CF (408) 3.76 0.57 0.82
Net Operating CF (412) 156 294 264
Net Invt in Properties (11.8) (173) (2,495) (21.5)
Other Invts (net) 0.0 1.99 0.0 0.0
Invts in Assoc. & JV 0.0 0.0 0.0 0.0
Div from Assoc. & JVs 0.0 0.0 0.0 0.0
Other Investing CF 0.0 0.0 0.0 0.0
Net Investing CF (11.8) (171) (2,495) (21.5)
Distribution Paid 0.0 (125) (176) (262)
Chg in Gross Debt 589 10.2 845 300
New units issued 0.0 0.0 1,650 0.0
Other Financing CF 0.0 0.0 0.0 0.0
Net Financing CF 589 (114) 2,319 37.7
Currency Adjustments 0.0 0.0 0.0 0.0
Chg in Cash 165 (129) 118 281
Source: Company, DBSVTH
Distribution Paid / Net Operating CF
Page 27
Company Focus
Dusit Thani Freehold and Leasehold Real Estate Investment Trust
DBSVTH recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
Share price appreciation + dividends
Completed Date: 4 Jun 2019 10:34:16 (THA) Dissemination Date: 4 Jun 2019 17:57:21 (THA)
Sources for all charts and tables are DBSVTH unless otherwise specified.
GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by DBS Vickers Securities (Thailand) Co Ltd (''DBSVTH''). This report is solely intended for the clients of DBS Bank Ltd, its
respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in
any form or by any means or (ii) redistributed without the prior written consent of DBS Vickers Securities (Thailand) Co Ltd (''DBSVTH'').
The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS
Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively,
the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other
factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or
warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without
notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific
investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees
only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial
advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit)
arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not
to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons
associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have
positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and
other banking services for these companies.
Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can
be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments.
The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may
not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to
update the information in this report.
This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned
schedule or frequency for updating research publication relating to any issuer.
The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and
assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on
which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual
results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED
UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:
(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and
(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk
assessments stated therein.
Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.
Page 28
Company Focus
Dusit Thani Freehold and Leasehold Real Estate Investment Trust
Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)
mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the
commodity referred to in this report.
DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public
offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage
in market-making.
ANALYST CERTIFICATION
The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the
companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her
compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst
(s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of
the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the
real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the
management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or
his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has
procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of
research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment
banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment
banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of
the DBS Group.
COMPANY-SPECIFIC / REGULATORY DISCLOSURES
1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS'') or their subsidiaries and/or other affiliates do not have
a proprietary position in the securities recommended in this report as of 30 Apr 2019
2. Neither DBS Bank Ltd nor DBS HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research
Report.
Compensation for investment banking services:
3. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of
securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons
wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any
security discussed in this document should contact DBSVUSA exclusively.
Disclosure of previous investment recommendation produced:
4. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published
other investment recommendations in respect of the same securities / instruments recommended in this research report during the
preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment
recommendations published by DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other
affiliates in the preceding 12 months.
1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of
which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.
2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.
Page 29
Company Focus
Dusit Thani Freehold and Leasehold Real Estate Investment Trust
RESTRICTIONS ON DISTRIBUTION
General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of
or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use
would be contrary to law or regulation.
Australia This report is being distributed in Australia by DBS Bank Ltd, DBSVS or DBSV HK. DBS Bank Ltd holds Australian Financial
Services Licence no. 475946.
DBSVS and DBSV HK are exempted from the requirement to hold an Australian Financial Services Licence under the
Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS Bank Ltd and DBSVS
are regulated by the Monetary Authority of Singapore under the laws of Singapore, and DBSV HK is regulated by the
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Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.
Hong Kong This report has been prepared by an entity(ies) which is not licensed by the Hong Kong Securities and Futures
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(Chapter 571 of the Laws of Hong Kong). This report is being distributed in Hong Kong and is attributable to DBS Bank
(Hong Kong) Limited, a registered institution registered with the Hong Kong Securities and Futures Commission to carry
on the regulated activity of advising on securities pursuant to the Securities and Futures Ordinance (Chapter 571 of the
Laws of Hong Kong).
For any query regarding the materials herein, please contact Carol Wu (Reg No. AH8283) at [email protected]
Indonesia This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia.
Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received
from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection
with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report
are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their
respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties
related or associated with any of them may have positions in, and may effect transactions in the securities mentioned
herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for
the subject companies. They may also have received compensation and/or seek to obtain compensation for broking,
investment banking/corporate advisory and other services from the subject companies.
Wong Ming Tek, Executive Director, ADBSR
Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn
No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by
the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective
foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the
Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited
Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the
report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327
2288 for matters arising from, or in connection with the report.
Page 30
Company Focus
Dusit Thani Freehold and Leasehold Real Estate Investment Trust
Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd.
United
Kingdom
This report is produced by DBS Vickers Securities (Thailand) Co Ltd which is regulated by the Securities and Exchange
Commission, Thailand.
This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd, ("DBSVUK"). DBSVUK is
authorised and regulated by the Financial Conduct Authority in the United Kingdom.
In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and
associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in
any form or by any means or (ii) redistributed without the prior written consent of DBSVUK. This communication is
directed at persons having professional experience in matters relating to investments. Any investment activity following
from this communication will only be engaged in with such persons. Persons who do not have professional experience in
matters relating to investments should not rely on this communication.
Dubai
International
Financial
Centre
This research report is being distributed by DBS Bank Ltd., (DIFC Branch) having its office at units 608 - 610, 6th Floor,
Gate Precinct Building 5, PO Box 506538, DIFC, Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated
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DFSA rulebook) and no other person may act upon it.
United Arab
Emirates
This report is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as
defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. This report is for
information purposes only and should not be relied upon or acted on by the recipient or considered as a solicitation or
inducement to buy or sell any financial product. It does not constitute a personal recommendation or take into account
the particular investment objectives, financial situation, or needs of individual clients. You should contact your
relationship manager or investment adviser if you need advice on the merits of buying, selling or holding a particular
investment. You should note that the information in this report may be out of date and it is not represented or
warranted to be accurate, timely or complete. This report or any portion thereof may not be reprinted, sold or
redistributed without our written consent.
United States This report was prepared by DBS Vickers Securities (Thailand) Co Ltd (''DBSVTH''). DBSVUSA did not participate in its
preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not
associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst
compensation, communications with a subject company, public appearances and trading securities held by a research
analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents.
This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other
institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who
wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.
Other
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In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified,
professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.
Page 31
Company Focus
Dusit Thani Freehold and Leasehold Real Estate Investment Trust
DBS Regional Research Offices
HONG KONG DBS (Hong Kong) Ltd Contact: Carol Wu 13th Floor One Island East, 18 Westlands Road, Quarry Bay, Hong Kong Tel: 852 3668 4181 Fax: 852 2521 1812 e-mail: [email protected]
MALAYSIA AllianceDBS Research Sdn Bhd Contact: Wong Ming Tek (128540 U) 19th Floor, Menara Multi-Purpose, Capital Square, 8 Jalan Munshi Abdullah 50100 Kuala Lumpur, Malaysia. Tel.: 603 2604 3333 Fax: 603 2604 3921 e-mail: [email protected]
SINGAPORE DBS Bank Ltd Contact: Janice Chua 12 Marina Boulevard, Marina Bay Financial Centre Tower 3 Singapore 018982 Tel: 65 6878 8888 Fax: 65 65353 418 e-mail: [email protected] Company Regn. No. 196800306E
INDONESIA PT DBS Vickers Sekuritas (Indonesia) Contact: Maynard Priajaya Arif DBS Bank Tower Ciputra World 1, 32/F Jl. Prof. Dr. Satrio Kav. 3-5 Jakarta 12940, Indonesia Tel: 62 21 3003 4900 Fax: 6221 3003 4943 e-mail: [email protected]