CDLHTrust – CIMB

Vulnerable in volatile times

• Downgrade to Underperform from Neutral. CDHLT is the largest hotel owner in Singapore by number of rooms. The global economic slowdown is negative for the short-stay hospitality sector which is traditionally vulnerable. Despite long master lease structures for its hotel assets, the minimum rent component for its initial four assets acquired at listing and Hotel Rendezvous in New Zealand only contribute a third of our gross revenue forecast for FY08. This subjects CDLHT’s gross revenue to a large degree of uncertainty. Slowing visitor arrivals in September despite the well-publicised F1 event is in line with our house view that the US financial crisis could result in a marked slowdown in Asia. Earlier, we had cut our REVPAR forecasts by 10-20% and removed our acquisition assumptions for FY09-10. The sole saving grace for CDLHT is its low asset leverage of 18.2%, which gives it ample financial flexibility.

• Unchanged DDM-derived target price of S$0.77 (discount rate 10.8%). A recent short rally has brought CDLHT’s share price close to our target price of S$0.77. Downgrade to Underperform from Neutral on valuation grounds.