CDLH-Trust – CIMB

In an upswing

• Largest hotel owner in Singapore. CDLHT is a stapled group comprising H-REIT, a real estate investment trust which owns six hotel properties and one shopping arcade; and HBT, a business trust which is currently dormant. CDLHT is the largest Singapore hotel owner with 2,327 room keys, representing a 6% share of the hotels in Singapore.

• Tourism targets to drive demand for hotel stay in Singapore. The government has set aggressive targets for tourism in Singapore, aiming to triple tourism receipts to S$30bn and double visitor arrivals to 17m by 2015. These targets should drive the demand for hotel accommodation in Singapore over the next eight years.

• Sustainable performance despite large upcoming hotel supply. New hotel rooms in 2008-10 are expected to add some 37% to the current room stock. However, we see resilience in CDLHT’s portfolio, from: 1) its centrally located Singapore assets with mid-tier pricing; 2) concentration on less price-sensitive business travellers; 3) price advantage over new hotels which face high construction costs; and 4) the possibility of demand outstripping supply if Singapore’s tourism targets are met.

• 8.2% DPU CAGR for 2008-10. CDLHT is poised for growth via acquisitions and growth in revenue per room (REVPAR) from 2008 to 2010. We expect CDLHT to acquire S$300m of properties each year from 2008 to 2010, expanding its portfolio to about S$2.5bn by end-2010. In addition, we expect REVPAR growth of up to 25% for its Singapore hotels in the same period. On this basis, we forecast a DPU CAGR of 8.2% for 2008-10 for CDLHT.

• Initiate with Outperform and DDM-derived valuation of S$2.38. We arrive at our target price of S$2.38 using DDM valuation (discount rate of 8.5%, terminal growth rate at 3%). This represents a total return of 24% from a forward yield of 5.6% and potential price upside of 18.4%.