thailand company focus dusit thani freehold and leasehold...
TRANSCRIPT
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)
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%)
debt.
Dusit Thani Laguna Phuket (freehold). DREIT invested Bt2.8bn
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
DMS3.
DREIT: Investment structure of new asset
New asset investment strcuture of DREIT
in Bt in USD
Equity (100% shares acquisition) Bt4.8m USD0.15m Debt Bt2,380.8m USD74.4m
Total Bt2,385.6m USD74.55m
*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
Brand Dusit Thani Dusit Thani Dusit D2 Dusit Thani
Star rating 5 5 5 5
Acquisition cost (Bt m) 2,801 857 376 2,385.6 6,419.6
No. rooms/ villas 226 296 130 95 747
Type of ownership Freehold leasehold (22 years)
Freehold leasehold (40 years)
Term 2019-2031 2020-2040
Fixed rent Bt205m USD7m (c. Bt224m) c. Bt429m
Lessee DMCO
(99.99% shareholding by DTC)
DMS3 (100% sharesholding by
DMCO)
DTC (ultimate lessee)
Property manager DTC DTC DTC
Source: Company, DBSVTH
Page 8
Company Focus
Dusit Thani Freehold and Leasehold Real Estate Investment Trust
DREIT: Dusit Thani Laguna Phuket
Source: Company, DBSVTH
DREIT: Dusit Thani Hua Hin
Source: Company, DBSVTH
Page 9
Company Focus
Dusit Thani Freehold and Leasehold Real Estate Investment Trust
DREIT: Dusit D2 Chiang Mai
DREIT: Dusit Thani Maldives
Source: Company, DBSVTH
Page 10
Company Focus
Dusit Thani Freehold and Leasehold Real Estate Investment Trust
Company Background
Corporate History. DREIT launched its initial public offering
(IPO) on 23 Nov 2017 and was listed on the Stock Exchange
of Thailand (SET) on 15 Dec 2017 (first trading date), with
total registered capital of Bt3.66bn. The REIT focuses on
investments in freehold and leasehold properties, especially
hotels and related businesses.
DREIT was converted from Dusit Thani Freehold and
Leasehold Property Fund (DTCPF) in Nov 2017. This was
executed through share-swapping, with 409.4m new shares
issued and cash paid to DTCPF unitholders.
The REIT has a policy of searching for potential assets
continuously, as well as constantly renovating and uplifting
the quality of its existing assets to generate long term
sustainable income and returns to the REIT’s unitholders.
DREIT: REIT Structure
Source: Company, DBSVTH
About DREIT’s sponsor/lessee/property manager. Dusit Thani
Public Company Limited (DTC) has over 70 years of
experience in hotels and the hospitality business. DTC has
created its own well-established hotel brand called ‘Dusit
Thani’, representing luxurious and high-quality hotels with
Thai heritage and interior design.
It currently operates 269 properties, with nine owned-hotels
and 260 management contracts/franchises in 13 countries
around the world. It also established a hospitality education
business for over 25 years under ‘Dusit Hospitality Education’.
DTC’s policy is to diversify and expand into other hotel-
related businesses through asset-light initiatives and lease
model. Currently, its business structure covers 5 major areas
including hotel, education, mixed-used project, food, and
others (venture capital and hospitality services).
About the REIT manager. Dusit Thani Properties REIT Co., Ltd.
is a company registered and incorporated in Thailand with
registered paid-up capital of Bt10m. DTC is a major
shareholder in DMCO with 99.99% stake of the total paid-up
capital.
REIT
Invest
Rent AssetAssetLessee
HOTEL MANAGER
DMCO
Manage Asset
Base Management feeIncentive fee
Base Management feeIncentive fee
Asset
Company Lessee
HOTEL MANAGER
Lease asset
Manage asset
Rental Fees Rental Fees
DMS2 DMS3
Page 11
Company Focus
Dusit Thani Freehold and Leasehold Real Estate Investment Trust
DREIT: REIT Summary
Name Dusit Thani Freehold and Leasehold Real Estate Investment Trust
Ticker DREIT
Assets Type Hotels
Ownership Leasehold and Freehold
Assets Sponsor Dusit Thani PLC (DTC)
Initial Assets Dusit Thani Laguna Phuket (freehold)
Dusit Thani Hua Hin (leasehold 20 years)
Dusit D2 Chiang Mai (freehold)
New asset Dusit Thani Maldives (leasehold 40 years)
REIT Manager Dusit Thani Properties REIT Co., Ltd.
Property Manager Dusit Thani PLC (DTC)
Lessee Dusit Thani Management Company Limited (DMCO)
Trustee Krungthai Asset Management
Financial Advisors IV Global Securities PCL (existing assets)
CIMB (Thailand) PCL (new asset)
Appraisers Knight Frank
HVS by Nexus
Auditor KPMG Phoomchai Audit Co., Ltd
Asset size (initial asset) Bt4.2bn
Borrowings (initial asset) Bt0.7bn
Asset size (new asset) c. Bt2.4bn
Borrowings (new asset) c. Bt0.7bn
Asset size (post-acquisition) c. Bt6.6bn
Borrowings (post-acquisition) c. Bt1.4bn
Dividend payout policy No less than 90% of adjusted net profit
Source: Company, DBSVTH
Page 12
Company Focus
Dusit Thani Freehold and Leasehold Real Estate Investment Trust
Competitive Strengths Global Dusit brand. Customers are well aware of the
premium/global standards and Thai heritage of the Dusit
brand. All Dusit Thani hotels under DREIT are flagship hotels
with five-star rating. Their unique Thai oriented-identity is
through interior design, decoration and services. Dusit is a
preferred brand when it comes to premium and high-quality
hotels and services.
Diversified portfolio. DREIT’s investment in overseas assets
could help reduce impacts of seasonality and country-related
risks. The 3rd quarter is normally low season in Thailand, in
Maldives it is in the 2nd quarter. Thus, we believe the new
asset would provide some balance to its portfolio and help
diversify DREIT’s country-related risks and exposure (currently
limited to only Thailand).
DREIT: EBITDA proportion (%) in 2018
Source: Company, DBSVTH
The new asset in Maldives would also reduce the
concentration of its guests’ nationalities. Thais are the major
customers at all hotels under DREIT (especially Dusit Thani
Hua Hin). In 2018, Thai customers accounted for 32% of
total room nights at existing assets; however, the proportion
of Thai customers for the combined portfolio was lower at
28% of total room nights and the Chinese customers
increased from 13% to 16% (existing vs. combined
portfolio).
DREIT: Nationality (%) of hotel guests in 2018
Source: Company, DBSVTH
Prime locations of assets. DREIT’s assets (including its new
asset) are located in popular tourist destinations (Phuket,
Maldives, Chiang Mai, and Hua Hin), with proximity to well-
known tourist attractions. This provides customers with
conveniences in travelling, sightseeing and transportation,
and could persuade customers to choose Dusit hotels over
other competitors with equivalent services and standards.
• Dusit Thani Laguna Phuket is located in Bang Tao
beach, with proximity to the city centre, Pa Tong
beach (popular tourist attraction), and Phuket
International Airport (16 km away).
• Dusit Thani Hua Hin is located between Cha-am
district, Petchaburi province and Hua Hin district,
Prachuap Khiri Khan province. It has proximity to
the city centre, shopping streets and markets in Hua
Hin district, and is a 2.5hr drive from Bangkok.
• Dusit Thani D2 Chiang Mai is located in the city
centre of Chiang Mai, with proximity to the night
bazaar market (the most famous shopping street in
Chiang Mai), wide variety of cafes and restaurants.
Long-term rental revenue. DMCO has leased back all DREIT’s
assets with an agreement to provide; (i) fixed rents of Bt205m
and USD7m (or Bt224m at Bt32/USD) for its existing assets
and new Maldives asset, (ii) variable rents, the excess of
actual revenue (EBITDA) over the fixed rents.
The variable rents will be shared between DREIT and DMCO
at rates of 85% (2018-2022) and 80% (from 2023 onwards)
for existing assets, and 90% (2020-2059) for the new
Maldives asset.
62%
6% 5%
26%
49%
11% 13%
26%
0%
20%
40%
60%
80%
1Q18 2Q18 3Q18 4Q18
EBITDA - Portfolio (existing assets)
EBITDA - Portfolio (included new asset)
32%
17%13%
38%
28%
17% 16%
39%
0%
20%
40%
60%
Thailand EU China Other
Portfolio (existing assets) Portfolio (included new asset)
Page 13
Company Focus
Dusit Thani Freehold and Leasehold Real Estate Investment Trust
If revenue (EBITDA) falls below the fixed rents (as mentioned
above), DMCO has agreed to compensate for DREIT to at
least receive the fixed rents.
This implies long term revenue streams for DREIT over two
decades (2020-2040). The fixed rents not only secure stable
income; but also allow DREIT investors to enjoy fixed income
from DMCO during low seasons.
DREIT: Fixed and variable rents from lessee
Existing asset New asset Total
Fixed rent Bt205m USD7m
(c. Bt224m at Bt32/USD)
Bt429m
Variable rent (% EBITDA net fixed rent)
2018-2022: 85% 2023-2031: 80%
2020-2040: 90%
Source: Company, DBSVTH
Highly experienced and established property manager. DTC is
the ultimate lessee for all assets under DREIT as it holds a
99.99% stake in DMCO (the lessee of DREIT’s existing assets
and its new asset in Maldives). DTC is also the property
manager for all of DREIT’s assets. As a distinguished
hospitality group, DTC has the expertise/experience of
operating and managing hotels and other hospitality
properties for over 70 years. It currently has 269 properties in
13 countries under its operations and 60 management
contracts in its pipeline.
100% insured. The assets under DREIT are fully covered by
all-risks insurance, including any business interruption, public
liabilities and political violence. This should help prevent
operational risks that might affect hotel operations and
earnings of DREIT.
Tourism overview Thailand: Tourism overview. In 2018, total tourism income
continued to grow at 11.6% to Bt3.07tn (from Bt2.75tn in
2017), despite a global economic slowdown. This comprised
revenue contribution from foreign tourists of Bt2tn and Thai
tourists of Bt1.07tn.
Thailand: Tourism income in 2018
Tourists (Bt tn) 2017 2018 % growth YoY
Thai 0.93 1.07 7.9%
Foreign 1.82 2 9.6%
Total 2.75 3.07 11.6%
Source: Ministry of Tourism and Sport, Thailand, DBSVTH
• Foreign tourists. Tourist arrivals increased 7.5% y-o-y to
38.23m in 2018. The total revenue from tourists’
spending grew 9.6% y-o-y to Bt2tn (from Bt1.82tn in
2017), at an average daily spending of Bt5,557 (+3.43%
y-o-y).
The majority of tourists travelling to Thailand were from
China, with 10.5m visitors (+7.4% y-o-y) accounting for
27.5% of total tourists in 2018. Chinese tourists are the
largest contributors to Thailand’s tourism revenue at
Bt0.58tn (+11.5% y-o-y) in 2018.
We expect foreign tourists to increase y-o-y (majority
Chinese tourists) and their spending to continue rising in
2019 in low-to-medium growth. We maintain our
neutral outlook on Thailand’s overall tourism sector.
• Local tourists. Thailand’s domestic tourism remained
positive. The number of Thai tourists’ spending rose
7.9% y-o-y to Bt1.1tn in 2018 (from Bt0.93tn in 2017).
We believe that Thai’s domestic tourism will continue to
rise in 2019, stemming from the government policy of
‘Amazing Thailand Go Local’. The government is
providing tax incentives to support and encourage Thai
tourists to travel to non-tourist destinations in Thailand.
• Occupancy. The average occupancy rate (OR) of all
available guest rooms rose to 70.9% in 2018 from
68.9% in 2017, with an increase in total number of
guests staying in Thailand to 166m in 2018 from 158m
in 2017.
Page 14
Company Focus
Dusit Thani Freehold and Leasehold Real Estate Investment Trust
Thailand: Avrg. OR (%) and no. of guests
Source: Ministry of Tourism and Sport, Thailand, DBSVTH
Phuket: Strong competition in the hotel and accommodation
segment has continued since 2016, mainly due to a large
market supply. However, the number of tourist arrivals
continued to rise in 2018 despite the boat accident in Jul-
2018 that caused a decline in Chinese tourists (majority
tourists). Moreover, total tourism revenue continued to grow
12.8% y-o-y to Bt477bn, with Thai tourists contributing
Bt53bn and foreign tourists Bt424bn
We maintain our positive outlook in 2019 due to increasing
number of tourists from Malaysia, Russia and India which we
believe will boost tourist arrivals and revenue.
• Demand. In 2018, tourist arrivals rose to 14.4m
(+2.6% y-o-y) with 4.1m Thai tourists (+3.8% y-o-y)
and 10.3m foreign tourists (+2.2% y-o-y).
Phuket: Tourist arrivals in 2015-2018
Source: Ministry of Tourism and Sport, Thailand, DBSVTH
• Supply. Total number of accommodations dropped
1.9% y-o-y to 1,930, resulting in a drop in total
number of key rooms by 0.9% y-o-y to 96,143 rooms
in 2018.
• Occupancy. The average OR in Phuket rose 0.5% to
75.7% in 2018 from 75.2% in 2017; total number of
guests increased to 12.7m in 2018 from 12.5m in
2017.
Phuket: Avrg. OR (%) and no. of guests
Source: Ministry of Tourism and Sport, Thailand, DBSVTH
Chiang Mai: It is a popular tourist destination for both Thai
and foreign tourists based on the annual growth of tourist
arrivals, spending and occupancy rates. Its popularity is
expected to continue in 2019. Total tourism revenue of
Bt108bn (+9% y-o-y) was contributed by Thai tourists
(Bt66bn) and foreign tourists (Bt42bn).
• Demand. In 2018, tourist arrivals rose to 10.8m
(+4.3% y-o-y), with 7.6m Thai tourists (+4.5% y-o-y)
and 3.2m foreign tourists (+3.8% y-o-y).
Chiang Mai: Tourist arrivals in 2015-2018
Source: Ministry of Tourism and Sport, Thailand, DBSVTH
Page 15
Company Focus
Dusit Thani Freehold and Leasehold Real Estate Investment Trust
• Supply. Total number of key rooms grew 0.9% to
38,096 rooms and total number of accommodations
rose 1.4% to 855 premises. Hotels rooms accounted
for 48% of total accommodations and 68% of total
key rooms.
• Occupancy. The average OR in Chiang Mai rose 2.1%
to 76% in 2018 from 73.9% in 2017; total number of
guests rose to 8.3m in 2018 from 8m in 2017.
Chiang Mai: Avrg. OR (%) and no. of guests
Source: Ministry of Tourism and Sport, Thailand, DBSVTH
Hua Hin (Prachuap Khiri Khan-province): The 2019 outlook is
positive for this destination. The majority of tourists travelling
to Hua Hin are Thai and would receive tax benefits from the
‘Amazing Thailand Go Local’ campaign. We expect tourist
arrivals and revenue, especially from local visitors, to continue
growing in 2019. Total tourism revenue of Bt43bn (+8.6% y-
o-y) was contributed by Thai tourists (Bt29bn) and foreign
tourists (Bt14bn).
• Demand. In 2018, tourist arrivals rose to 7.2m (+5.3%
y-o-y), with 5.9m Thai tourists (+5.9% y-o-y) and 1.2m
foreign tourists (+2.5% y-o-y).
Hua Hin: Tourist arrivals in 2014-2018
Note: Excluding Cha-Am sub-district in 2014-2015 Source: Ministry of Tourism and Sport, Thailand, DBSVTH
• Supply. Total number of key rooms grew 1.6% to
17,167 rooms and total number of
accommodations rose 1.5% to 558 premises. Hotels
accounted for 35% of total accommodations and
56% of total key rooms.
• Occupancy. The average OR in Hua Hin rose 1.9%
to 66.8% in 2018 from 65.4% in 2017; total
number of guests rose to 4.3m in 2018 from 4.2m
in 2017.
Hua Hin: Avrg. OR (%) and no. of guests
Source: Ministry of Tourism and Sport, Thailand, DBSVTH
Page 16
Company Focus
Dusit Thani Freehold and Leasehold Real Estate Investment Trust
Maldives: Tourist arrivals in Maldives grew in 2014-2018,
with compound annual growth rate (CAGR) of 6.9%. We
continued to see increasing tourist arrivals in Jan-Apr 2019,
with growth of 19.7% y-o-y. We anticipate positive outlook
on Maldives’ tourism sector in 2019
• Demand. In 2018, tourist arrivals rose to 1.5m (+6.8%
y-o-y). The majority of tourists were from Europe
(accounting for 49% of total tourists), with 12.4% y-
o-y growth to 0.7m and from Asia Pacific (accounting
for 42% of total tourists), with 0.7% y-o-y growth to
0.6m.
Maldives: Tourist arrivals in 2014-2018
Source: Ministry of Tourism, Republic of Maldives
• Supply. Total number of accommodations by bed
count grew 8.6%% to 41,887 beds in 2018.
Resorts/marinas and hotels accounted for 18% and
15% of total accommodations respectively.
• Occupancy. The average OR in Maldives rose 1% to
62.1% in 2018 from 61.1% in 2017, at an average
duration of stay of 6.4 days in 2018 (vs. 6.2 days in
2017).
Maldives: Avrg. OR (%) and no. of guests
Source: Ministry of Tourism, Republic of Maldives
Page 17
Company Focus
Dusit Thani Freehold and Leasehold Real Estate Investment Trust
Growth Strategies Boosting occupancy rates. We expect to see an increase in
DREIT’s OR, especially for its existing assets after major
renovations in 2017-2022 (a typical major renovation cycle is
every 10 years). DREIT is expected to implement only annual
renovations and maintenance for villas at Dusit Thani
Maldives; we assume that no major renovations will be
required for the new asset.
We have also taken into account the market environment,
tourism demand and supply, as well as competition in each
asset location. In our forecast, we assume DREIT assets’ OR as
per the following table:
DREIT: Occupancy (%) by asset
2019F-2024F 2025F-2049F 2050F onwards
Dusit Thani Laguna Phuket* 75% 75% 70%
Dusit Thani Hua Hin 60-65% 60-65% (until 2040)
Dusit D2 Chiang Mai* 70-80% 70%-80% 65%
Dusit Thani Maldives 80-85% 70-75% 65% (until 2059)
*Freehold asset Source: DBSVTH
Raising ADR growth after renovation. We see growing annual
tourist arrivals at all of DREIT’s assets. The growth in tourist
arrivals has surpassed growth of total accommodations,
implying that demand is higher than supply.
We have also taken into account DREIT’s asset quality after
annual maintenance, minor/major renovations; we believe
DREIT would still be able to raise its ADR in the short-to-
medium term. In our forecast, we assume ADR growths for
DREIT’s assets as per the following table:
DREIT: ADR growth (%) by asset
2019F-2024F 2025F-2049F 2050F onwards
Dusit Thani Laguna Phuket* 2-5% 2% 0%
Dusit Thani Hua Hin 0-8% 0-2% (until 2040)
Dusit D2 Chiang Mai* 2-8% 1-2% 0%
Dusit Thani Maldives 2-2.5% 2% 0% (until 2059)
*freehold asset
Source: DBSVTH
Page 18
Company Focus
Dusit Thani Freehold and Leasehold Real Estate Investment Trust
New asset acquisitions. DTC is currently the sole asset
sponsor of DREIT. Currently, DTC operates 9 owned-hotels
and 260 management contracts/franchise in 13 countries. Its
properties are varied, ranging from high to low-end
properties, luxury and boutique villas/hotels, to budget hotels
and residences.
Apart from its current asset portfolio, DTC is targeting to
open 11 new hotels in Philippines, Singapore, China, Qatar,
Bahrain and Kenya. This would raise its coverage to more
than 20 countries around the world, with 20,000+ room
offerings. DREIT’s existing assets are among the top three
revenue generators for DTC and are flagship hotels among
DTC-owned hotels (including Dusit Thani Maldives).
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
and no growth in FY50-59 (end of lease term).
Dusit Thani Laguna Phuket: OR (%) and ADR
Dusit Thani Hua Hin: OR (%) and ADR
Dusit D2 Chiang Mai: OR (%) and ADR
Dusit Thani Maldives: OR (%) and ADR
Source: Company, DBSVTH
4,41
4
4,98
5
4,87
4
5,11
8
5,37
3
5,64
2
5,75
5
5,87
0
5,98
7
73%
63%
69%
75% 75% 75% 75% 75% 75%
40%
50%
60%
70%
80%
-
2,000
4,000
6,000
8,000
10,000
2016 2017 2018 2019F 2020F 2021F 2022F 2023F 2024F
(Bt )
ADR OR (%)
3,57
0
3,15
5
3,01
5
3,01
5
3,25
6
3,51
7
3,58
7
3,65
9
3,73
2
65% 64%
68%65%
60%
65% 65% 65% 65%
40%
50%
60%
70%
-
2,000
4,000
6,000
8,000
2016 2017 2018 2019F 2020F 2021F 2022F 2023F 2024F
(Bt )
ADR OR (%)
2,90
8
2,83
2
2,61
7
2,69
6
2,77
7
2,86
0
2,94
6
3,18
1
3,24
5
82%79%
81% 80% 80%
70% 70%
80% 80%
40%
60%
80%
100%
-
2,000
4,000
6,000
8,000
2016 2017 2018 2019F 2020F 2021F 2022F 2023F 2024F
(Bt )
ADR OR (%)
18
,22
3
16,6
29
16,8
32
17,2
53
17,5
98
17
,95
0
18
,30
9
18
,67
5
19
,04
8
67%
76%
84% 85%80% 80% 80% 80% 80%
10%
20%
30%
40%
50%
60%
70%
80%
90%
-
5,000
10,000
15,000
20,000
25,000
30,000
2016 2017 2018 2019F 2020F 2021F 2022F 2023F 2024F
(Bt )
ADR OR (%)
Page 20
Company Focus
Dusit Thani Freehold and Leasehold Real Estate Investment Trust
Balance Sheet:
In 1Q19, DREIT’s investment properties accounted for 96% of its
total assets. Its gearing ratio of 17% represents long-term loans of
Bt782m over total assets of Bt4.6bn. We expect its gearing ratio to
increase to 21% after the new asset acquisition in 3Q19, assuming
additional debt of Bt735m.
DREIT announced a distribution per unit (DPU) of Bt0.17 in 1Q19,
bringing full-year FY18 DPU to Bt0.4354, representing 97% payout.
This implies a yield of 7.3% at its last traded price of Bt5.95 as of 31
May 2019.
Share Price Drivers:
OR/ADR growth, and new asset acquisitions would be the key drivers
for DREIT’s revenue and earnings growth.
Key Risks:
Economic volatility. A volatile economy may have an impact on
DREIT’s operations, in terms of OR and ADR of assets, and affect
DREIT’s earnings and DPU.
Increasing supply. An increase in number of accommodations may
affect DREIT’s potential to raise its OR and ADR.
Interest rate uptrend. Any spike in interest rates may have an impact
on finance cost and distribution yield of DREIT.
Company Background
DREIT launched its initial public offering (IPO) on 23 Nov 2017 and
was listed on the Stock Exchange of Thailand (SET) on 15 Dec 2017
(first trading date), with total registered capital of Bt3.66bn. The REIT
focuses on investments in freehold and leasehold properties,
especially hotels and related businesses.
DREIT was converted from Dusit Thani Freehold and Leasehold
Property Fund (DTCPF) in Nov 2017. This was executed through
share-swapping, with 409.4m new shares issued and cash paid to
DTCPF unitholders.
DREIT has invested Bt4.2bn for its initial asset acquisitions (51%
leasehold and 49% freehold) consisting of three five-star hotels:
Dusit Thani Laguna Phuket, Dusit Thani Hua Hin and Dusit D2 Chiang
Mai. The REIT will acquire Dusit Thani Maldives for c. Bt2,385m in
early-2020.
The three major unit shareholders of DREIT are Dusit Thani PCL,
Social Security Office and Muang Thai Insurance PCL with stakes of
30%, 25.4% and 5.1% respectively.
Aggregate Leverage (%)
ROE (%)
NAV/ share
DPU and Distribution Payout (%)
*starting on 15 Dec 2017
Source: Company, DBSVTH
9.0 9.1
7.6 7.7
0.0
4.0
8.0
12.0
2017A 2018A 2019F 2020F
(Bt/share)
NAV per share
0.04
0.26
0.17
100%90%
107%
0%
40%
80%
120%
-
0.1
0.2
0.3
0.4
0.5
4Q17* 1H18 2H18
(Bt )
DPU Payout ratio (%)
Page 21
Company Focus
Dusit Thani Freehold and Leasehold Real Estate Investment Trust
Valuation
DCF valuation of Bt7.25 per share. Our DCF valuation gives
a fair value of Bt7.25 to DREIT (potential upside of 22%),
with total returns of 29%. This is based on WACC of 7.5%,
assuming cost of debt of 4.25% and cost of equity of
8.4%, with no terminal growth.
New asset acquisition in 4Q19. We expect revenue
contribution from DREIT’s new Maldives asset to filter
through from 4Q19 onwards. In our forecast, we assume
300m new shares issued at Bt5.5 per share. This would
raise the number of shares outstanding from 409.4m (at
IPO) to 709.4m after its new asset acquisition.
We have carried out a sensitivity analysis of DREIT’s share
price using two underlying key factors: new asset
acquisition cost and offer price (in the following table):
DREIT: Target price sensitivity analysis
Source: Company, DBSVTH
FY20F DPU accretion. We anticipate DREIT’s earnings to
grow from Bt179m with distribution per unit (DPU) of
Bt0.42 (excluding its new asset) to Bt314m with DPU of
Bt0.44 (including new asset), assuming 97% payout ratio in
FY20F. This results in a DPU accretion from pre-to-post
transaction of DREIT’s new asset acquisition.
CAPEX reserves. We have already factored in CAPEX
reserves for furniture fixture and equipment (FF&E)
purchase, minor renovations and other maintenance costs.
We assume CAPEX reserve of 5.5% p.a. of net investment
income from FY21-49 and 6% p.a. from FY50 onwards.
We assume additional CAPEX reserve of Bt1,310m for
existing and upcoming major renovations over a 5-year
period (FY19-23) for (i) Dusit Laguna Phuket (the expenses
of its major renovation were partially paid in FY18), (ii) Dusit
Thani Hua Hin, and (iii) Dusit D2 Chiang Mai.
The major renovation cycle of a hotel comes every 10 years.
We anticipate that DREIT will fund these renovations with
additional debt (from financial institution or bond issuance).
Therefore, in our forecast we assume additional debt of
Bt200m p.a. for the 10-year cycle of each of DREIT assets’
major renovations that are expected in FY27-29, FY37-39,
FY47-49 and FY57-59.
The table below illustrates our forecast assumptions of
DREIT’s CAPEX reserve for major renovations of its assets
Currently trading at 22% discount to NAV. With DREIT’s
current share price of Bt5.95 as of 31 May 2019 and NAV
of Bt7.64 per share in FY19F, implies a share price at a
discount of 22% to NAV.
Recommend BUY. DREIT offers a generous distribution yield
of 7.3% in FY19F, 7.4% in FY20F, with an IRR of 7.9%. We
think that DREIT’s distribution yield of 7.3% in FY19F is
attractive compared to an average property funds/REITs
sector yield of 5.7% in FY19F and a Thai 10-year govt.
bond yield of 2.5% (offering premium of 4.8%).
DREIT’s yield vs peers in FY19F
Source: DBSVTH
7.25 5.30 5.40 5.50 5.60 5.70 5.80
2,200 7.45 7.50 7.55 7.60 7.65 7.75
2,250 7.30 7.35 7.40 7.45 7.50 7.55
2,300 7.10 7.15 7.25 7.30 7.35 7.40
2,350 7.25 7.30 7.35 7.40 7.45 7.50
2,385 7.10 7.15 7.25 7.30 7.35 7.40
Offering price (Bt per share)
New
ass
et
acq
uis
itio
n c
ost
(Bt
m)
7.3% 7.2%6.7%
6.3%5.7%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
DREIT QHHR LHPF LHHOTEL POPF/ REITsector
Page 22
Company Focus
Dusit Thani Freehold and Leasehold Real Estate Investment Trust
Key Assumptions
FY Dec 2019F 2020F 2021F 2022F 2023F 2024F
Dusit Thani Laguna Phuket
Occupancy rate (OR) 75% 75% 75% 75% 75% 75%
Average Daily Rate 5,118 5,373 5,642 5,755 5,870 5,987
Dusit Thani Hua Hin
Occupancy rate (OR) 65% 60% 65% 65% 65% 65%
Average Daily Rate 3,015 3,256 3,517 3,587 3,659 3,732
Dusit D2 Chiang Mai
Occupancy rate (OR) 80% 80% 70% 70% 80% 80%
Average Daily Rate 2,696 2,777 2,860 2,946 3,181 3,245
Dusit Thani Maldives
Occupancy rate (OR) 85% 80% 80% 80% 80% 80%
Average Daily Rate 17,253 17,598 17,950 18,309 18,675 19,048
Revenue (EBITDA) Breakdown
FY Dec 2019F 2020F 2021F 2022F 2023F 2024F Revenues (Btm)
Dusit Thani Laguna Phuket 121 126 132 135 137 140
Dusit Thani Hua Hin 82 82 96 98 100 102
Dusit D2 Chiang Mai 33 34 31 32 39 40
Dusit Thani Maldives 89 305 311 317 323 331
Total 325 548 569 581 599 613
Source: Company, DBSVTH
Page 23
Company Focus
Dusit Thani Freehold and Leasehold Real Estate Investment Trust
Income Statement (Btm)
FY Dec 2017A 2018A 2019F 2020F
Gross revenue 19.0 226 319 532
Property expenses (1.1) (16.4) (18.0) (32.2)
Net Property Income 17.9 210 301 500
Other Opg expenses (0.2) (3.7) (5.3) (8.0)
Other Non Opg (Exp)/Inc 0.22 0.04 (8.7) (47.8)
Net Interest (Exp)/Inc (1.4) (20.7) (68.2) (130)
Exceptional Gain/(Loss) 0.0 (5.4) 0.0 0.0
Net Income 16.5 180 218 314
Tax 0.0 0.0 (4.9) (13.2)
Minority Interest 0.0 0.0 0.0 0.0
Preference Dividend 0.0 0.0 0.0 0.0
Net Income After Tax 16.5 180 213 301
Total Return 16.5 180 213 301
Non-tax deductible Items 0.0 0.0 0.0 0.0
Net Inc available for Dist. 16.5 186 218 314
Growth & Ratio
Revenue Gth (%) N/A 1,090.5 40.7 67.0
N Property Inc Gth (%) nm 1,075.0 43.1 66.3
Net Inc Gth (%) nm 991.1 18.5 41.1
Dist. Payout Ratio (%) 99.9 96.8 96.8 97.0
Net Prop Inc Margins (%) 94.0 92.8 94.3 93.9
Net Income Margins (%) 86.9 79.6 67.0 56.6
Dist to revenue (%) 86.9 82.0 68.6 59.1
Managers & Trustee’s fees to sales %)
(2.4) (2.6) (3.4) (2.6)
ROAE (%) N/A 4.9 4.7 5.5
ROA (%) N/A 4.1 3.8 4.2
ROCE (%) N/A 4.8 5.2 6.7
Int. Cover (x) 12.7 10.0 4.3 3.8
Source: Company, DBSVTH
Net Property Income and Margins
Page 24
Company Focus
Dusit Thani Freehold and Leasehold Real Estate Investment Trust
Quarterly / Interim Income Statement (Btm)
FY Dec 4Q2017 1Q2018 2Q2018 3Q2018 4Q2018 1Q2019
Gross revenue 19.0 113 28.5 35.8 49.5 104
Property expenses (1.1) (4.2) (4.4) (3.8) (4.0) (4.3)
Net Property Income 17.9 108 24.2 32.1 45.5 99.6
Other Opng expenses (0.2) (0.4) (2.0) (1.5) 0.11 (0.9)
Other Non Opg (Exp)/Inc 0.22 0.01 0.01 0.0 0.02 2.33
Net Interest (Exp)/Inc (1.4) (5.1) (5.0) (5.1) (5.5) (6.5)
Exceptional Gain/(Loss) 0.0 (6.2) 0.0 (0,5) (4.9) 6.7
Net Income 16.5 96.6 17.2 24.9 35.3 101
Tax 0.0 0.0 0.0 0.0 0.0 0.0
Minority Interest 0.0 0.0 0.0 0.0 0.0 0.0
Net Income after Tax 16.5 96.6 17.2 24.9 35.3 101
Total Return 16.5 103 17.2 25.5 40.2 94.4
Non-tax deductible Items 0.0 0.0 0.0 0.0 0.0 0.0
Net Inc available for Dist. 16.5 103 17.2 25.5 40.2 94.4
Growth & Ratio
Revenue Gth (%) N/A 492 (75) 26 38 110
N Property Inc Gth (%) nm 506 (78) 33 42 119
Net Inc Gth (%) nm 523 (83) 48 58 135
Net Prop Inc Margin (%) 94.0 96.2 84.7 89.5 91.9 95.9
Dist. Payout Ratio (%) N/A N/A N/A N/A N/A N/A
Net Property Income and Margins
Source: Company, DBSVTH
Page 25
Company Focus
Dusit Thani Freehold and Leasehold Real Estate Investment Trust
Balance Sheet (Btm)
FY Dec 2017A 2018A 2019F 2020F Investment Properties 4,173 4,340 6,835 6,835
Other LT Assets 0.0 0.0 0.0 0.0
Cash & ST Invts 165 35.5 153 434
Inventory 0.0 0.0 0.0 0.0
Debtors 1.14 1.48 1.75 2.82
Other Current Assets 5.62 5.11 6.24 8.98
Total Assets 4,344 4,382 6,996 7,281
ST Debt
0.0 0.0 0.0 0.0
Creditor 81.3 51.6 126 76.4
Other Current Liab 1.53 3.22 5.44 8.73
LT Debt 589 599 1,444 1,744
Other LT Liabilities 0.0 0.0 0.0 0.0
Unit holders’ funds 3,673 3,728 5,421 5,451
Minority Interests 0.0 0.0 0.0 0.0
Total Funds & Liabilities 4,344 4,382 6,996 7,281
Non-Cash Wkg. Capital (76.1) (48.2) (123) (73.3)
Net Cash/(Debt) (424) (564) (1,291) (1,310)
Ratio
Current Ratio (x) 2.1 0.8 1.2 5.2
Quick Ratio (x) 2.0 0.7 1.2 5.1
Aggregate Leverage (%) 14.1 13.8 21.1 25.5
Source: Company, DBSVTH
Aggregate Leverage
Page 26
Company Focus
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
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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
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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
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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
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Page 29
Company Focus
Dusit Thani Freehold and Leasehold Real Estate Investment Trust
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Page 30
Company Focus
Dusit Thani Freehold and Leasehold Real Estate Investment Trust
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Page 31
Company Focus
Dusit Thani Freehold and Leasehold Real Estate Investment Trust
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