CDL H-Trust – DBS

Paying more for your rooms

• RevPAR continues to trend upwards
• CDL HT sees firm occupancies in 1Q10 despite competition from Resorts World hotels
• Maintain BUY, TP S$2.00 based on DDM

A good quarter. In a traditionally weak 4Q, CDL HT reported commendable S$26.1m revenue (-7% yoy, 14% qoq) and NPI of S$24.7m (+1.1% yoy, 16% qoq), in line with our estimates. CDL HT’s hotels continued to perform well, with RevPAR growing steadily to S$159 per room night, up 3% qoq but remained below last year’s rates. Sustained high average occupancies of 89% also signal the possibility of rate hikes come 2010. 4Q09 DPU of 2.67 Scts was slightly ahead as CDL HT reverted to 100% payout of taxable income.

Firm occupancy rates despite competition from Resorts World. Recent news that hotels at Resorts World Sentosa (RWS) are fully booked till Mar’10 is positive for the local hotel industry. Average room rates for RWS hotels are S$282-422 per roomnight, well above industry average of S$200 per room-night also allay earlier fears of RWS slashing rates to boost occupancies. CDL HT guided that they did not see any drop in occupancies from current levels and could hike rates up in 1Q10. We also expect its strategically located hotels to enjoy spillover demand for rooms when RWS is fully operational.

Fundamentals remain sound, maintain BUY, TP S$2.00. We maintain our BUY call on CDL HT as we firmly believe that it will be a key beneficiary of an increasingly buoyant tourism outlook. Our DDM-based TP is adjusted to S$2.00 due to our raised payout assumptions. Catalysts for further re-rating stems on potential acquisitions given the trust’s low gearing ratio.