CDLHTrust – CIMB
Outstanding REVPAR growth
• In line. 2Q08 results were in line with Street and our expectations. DPU of 3.03cts forms 28% of our full-year forecast of 10.9cts. Gross revenue of S$29.5m surged 42.4% yoy, led by full contributions from Novotel Clark Quay and outstanding growth in revenue per available room (REVPAR). 1H08 DPU of 5.89cts was in line with our expectations, at 54% of our full-year estimate.
• Outstanding REVPAR, contrary to official statistics. CDLHT’s Singapore hotel REVPAR of S$222 in 2Q08 was up 30.6% yoy. This was attributed to a 29.4% surge in average daily rates to S$255 and a 1.1%-pt growth in average occupancy rates to 87.1%. The growth in occupancy defied STB’s recent statistics showing a 3.4%-pt drop in average occupancy rates for Singapore hotels to 83%.
• REVPAR to moderate in 2H08; acquisitions difficult. Following two months of negative newsflow on the Singapore hospitality sector, CDLHT’s share price had fallen some 28% from its last high of S$2.01. While rising inflation, an appreciating S$ and slowing visitor arrivals are valid concerns, we believe REVPAR growth will slow but not collapse in 2H08 as: 1) Singapore’s hotel supply remains tight till 2010; 2) rising construction costs will benefit existing hotels; and
3) CDLHT’s well-located mid-tier hotels have room for upside in relation to 5-star hotels. Nonetheless, its sharply depressed share price has pushed up trading yields to about 7.8%, which far exceeds our assumption of a 5.6% net property yield (for Singapore assets), making acquisitions in the near future difficult.
• Downgrade to Neutral from Outperform with lower target price of S$1.78 (from S$2.38). In view of CDLHT’s strong REVPAR performance, we have raised our FY08 occupancy assumption for its Singapore portfolio to 86% (from 84%), and average room rate growth assumption to 38% (from 33%). However, we now assume no new acquisitions for FY08. Overall, we raise our FY08 DPU estimate by 3.2% but cut our FY09-10 estimates by 8-9%. Our DDM-based target price
(discount rate 8.5%) correspondingly drops to S$1.78 (from S$2.38).