CDLHTrust – CIMB

Safe enough

• Fixed rent of S$42.1m alone represents yield of 6.6%. The fixed component of CDLHT’s rent at S$42.1m represents 36.7% of CDLHT’s gross revenue in FY08. In a worst case scenario where the variable rent is zero, (basically implying 0% occupancy) and payout ratio of 90% the fixed rent component alone would represent a 6.6% yield at the current share price level, safe for the entire master lease period which has tenures ranging between 10 to 20 years.

• Visitor arrivals down 15.3% yoy in Feb 09. Visitor arrivals to Singapore reached 689,000 in Feb 09. The decline of 15.3% yoy was the steepest since Jun 08. Average hotel occupancy rate was 76% for Feb 09, representing a 3.3%-point decline from Feb 08. Historical occupancy trends suggest an occupancy support at about 70%. Occupancy hovering near historical supports and the presence of the fixed rent component for CDL-HT makes us turn positive on the stock.

• Upgrade to Outperform at unchanged target price of S$0.68. At the current P/BV of 0.38x, we believe the price is low enough, despite the brief price rally over the last two weeks. The floor on yield downside justifies CDLHT’s premium over Ascott Residence Trust at 0.29x P/BV, and the office REIT sector at 0.26x. We upgrade our recommendation to Outperform based on its relative upside (+32%) to our STI target of 1,800. We maintain our estimates and target price of S$0.68, still based on DDM valuation. Our unchanged estimates imply forward dividend yields of 14.9%.