CDLHTrust – UOBKH

Beneficiary Of Upcoming Integrated Resorts

Strong recovery in visitor volumes expected with 12m visitors for Resorts World at Sentosa alone. Tourist arrivals are likely to rebound 20% yoy in 2010, augmented by the opening of two integrated resorts (IRs). The higher number of attractions will enable tour operators to enhance their offerings with longer-stay packages to a total population of 2b within a 5-hour flight radius. Genting Singapore alone expects 12m visitors p.a., comprising 40% locals and 60% tourists.

Occupancy could return to above-80% levels from 2010. Though there would be a huge supply of about 11,807 new hotel rooms over the next four years, occupancy rates could still return to above-80% levels based on four-year CAGR of 3% in tourist arrivals in 2008-12 (vs the historical 10-year CAGR of 5%) at an average length of stay of 3.7 days. Our forecast of a 20% rebound in visitor arrivals in 2010 is expected to lift occupancy levels beyond 80%.

Well positioned to handle increase in visitor arrivals. Novotel Clarke Quay has already filled 80% of its rooms for the 2009 Formula One event, bucking the trend even though it is not a trackside hotel. We expect to see a similar situation with the opening of the IRs in 2009 and 2010. We believe the knock-on effect from the opening of the casinos will be great, and CDL Hospitality Trusts (CDREIT) is well positioned to benefit from this as all of its properties in Singapore are strategically located either in or near the Central Business District with close proximity to Marina Bay Sands or Orchard Road.

Maintain BUY; target price: S$1.24. We remain positive on CDREIT for its potential to reap benefits from the opening of the IRs. It offers an attractive yield of 8.5%. We maintain our target price of S$1.24 based on a two-stage dividend discount model (required rate of return: 7.7%; terminal growth: 2.5%).