CDLHTrust – DBS

Outstanding RevPAR growth

Story: CDL HT reported a strong 2Q08 performance of a 42.4% and 41.7% growth in gross revenues and NPI to $29.5m and $27.7m respectively. Distributable income grew 68.7% to S$25m, translating to a DPU of 3.03 cts for the quarter. Together with 1Q08, unitholders are getting a DPU of 5.89 cts, which works out to an annualized yield of 8.18%.

Point: Main driver for a strong overall performance was largely organic with their hotel portfolio registering growth in excess of 12% yoy. Singapore hotels outperformed, registering revenue growth in excess of 20%, with a full quarter contribution from Novotel Clarke Quay. RevPAR was impressive; its Singapore hotels grew c30% yoy to $222 while occupancies remained high at 87.1% for the quarter. Average daily rate for its Singapore hotels was $255, which exceeded our full year forecast of $240.

While management expects 2H08 to remain stable with RevPar growth moderating due to a higher base, in our estimates, we have chosen to be conservative in our RevPAR assumptions taking into account; (i) potential slowdown in tourists growth on the back of inflationary factors, (ii) Olympics fever in Beijing diverting away tourist attention. Therefore, we adjust forward RevPAR growth in FY08 to 25% and 8% in FY09, keeping occupancies stable at 85%.

Relevance: Maintain BUY, TP is reduced to S$2.02 from S$2.90. Our DCF valuation incorporates a higher risk free rate of 3.9% and lower terminal growth of 1.5%. CDL HT is currently trading at 0.9x P/BV and offers investors a 7.9% and 8.4% FY08-FY09 DPU yield.