CDLHTrust – UOBKH
Stellar 4QFY07. DPU increased by 56.8% yoy to 2.76 cts.
CDL Hospitality Trusts (CDREIT) posted 4QFY07 revenue of S$27.96m, 97.2% and 65.2% higher than IPO projection and 4QFY06 respectively. This is driven by both acquisition and strong RevPAR growth. CDREIT announced DPU of 2.76 cts, 56.8% yoy growth.
We continue to like the company’s exposure to the hospitality sector in Singapore and Pan-Asia. Reiterate BUY.
Revenue driven by both acquisition and RevPAR growth. The two acquisitions made after IPO, Rendezvous Auckland and Novotel Clarke Quay Hotel, contributed 27.2% of CDREIT’s total revenue. Its IPO portfolio has seen RevPAR yoy growth of 33.5% to S$195, driven by 32.7% yoy growth and 0.6ppt increase (to 88.6%) in average daily rates and occupancy rates respectively.
DPU of 2.76cts is 56.8% and 97% higher than 4QFY06 and IPO projection respectively. This translates into full year DPU of 8.98cts, or FY07 DPU yield of 4.4%.
CDREIT is the purest Singapore Hospitality REIT. With 5 well-located hotels or 2,324 hotel rooms in Singapore, CDREIT is set to benefit from the buoyant tourism sector in Singapore. As the biggest hotelier in terms of room number, it has 6.2% of total hotel room inventory in Singapore.
Buoyant tourism industry outlook in Singapore. Singapore registered 10.3m tourist arrivals, up 5.4% yoy in 2007, surpassing its target of 10.2m visitors. Total visitor days have surged 13.4% yoy to 38m. Various events as well as MICE (Meetings, Incentives, Conventions and Exhibitions) activities will attract tourists to visit Singapore in 08. We estimate that the shortage of hotel rooms will further lead to room rates hikes while maintaining occupancy rates at a high
80% level.
Well positioned for yield-accretive acquisitions in Pan-Asia. As of 4QFY07, CDREIT’s gearing ratio stood at 18.7%, which allows it to tap debt capacity of $792m (assuming 45% optimal debt ratio). Management indicated that they are continuously looking for possible acquisition opportunities in Pan-Asia and maintaining the acquisition target of $300m per year till 09. Singapore, India and Vietnam are CDREIT’s favourite markets, for their high growth in Hospitality sector. Given cap rates stabilizing due to the softening of the real estate market,
we believe that CDREIT can make further yield-accretive acquisitions in 08.
Maintain BUY. Our target price of S$2.66 is based on DCF model (WACC: 6.5%; terminal growth rate: 1.5%), after 1) roll over FY10 forecast; 2) edge up our forecast of RevPAR growth rate in 08 to 20%, 2ppt higher from our previous forecast; 3) increase WACC by 50bps due to higher risk premium and cost of debt assumption as a result of current volatile market. After the recent correction, CDREIT is trading at an attractive FY08 yield of 5.4%.