CDL H-Trust – DBS

A fantastic run

• Results signify a demand recovery
• Positive vibes on sector should be priced in
• Looking for further catalysts for re-rating, downgrade to HOLD, TP S$1.57

Easing declines from demand recovery. Gross revenues of S$22.9m (-21.4% yoy , +11.9% qoq) and net property income of S$21.4m (-21.5%yoy, +11.5% yoy) were in line. Sequential growth in 3Q09 was on the back of a 15% growth of average portfolio RevPAR to S$154. Income available for distribution of S$16.9m translated to a DPU of 2.04 Scts after deducting income retained. Balance sheet remained strong at a gearing of c20.2% with interest cover of 10x.

Occupancy driven recovery a good sign. While performance still lagged compared to a year ago, we are encouraged from the sequential improvement in RevPAR. Note that average RevPAR of S$154 (-26 % yoy, +15% qoq) was driven largely by higher average occupancies, which in our view should be more sustainable in the longer run and a signal of a return of business confidence and travel. In addition, we believe that the Formula One race in Sept’09 also helped bumped up performance slightly.

Positive vibes should have been priced in. While we continue to like CDL HT for its exposure to the local tourism scene, at a P/NAV of 1.1x and FY09F-10F DPU yields of 5.1- 6.3%, we current stock price should have already priced in a fair amount of optimism and expectations faced by the local tourism industry. As such, we downgrade CDL HT to a HOLD given limited upside from our target price. TP S$1.57
is maintained. Further re-rating catalysts will hinge on (i) higher than projected tourism performance, (ii) acquisitions