CDL H-Trust – DBS

Adding 1,139 keys to portfolio

• Acquiring an Australian portfolio at a total cost of A$187.2m (or A$154k per key)
• Initial yield of 7.9% attractive vs implied 5% yield
• Reiterate BUY, TP adjusted to S$2.11, offering total return of 27%

Growing keys by 1,139. CDL Hospitality Trust (CDL HT) announces the acquisition of a portfolio of 5 freehold Australian hotels comprising 1,138 rooms for A$187.2m (S$154k per room). The portfolio will be operated by Accor SA for a period of 11.3 years on a base + variable rent structure, offering strong and steady incremental growth. The base rent is well protected by strong underlying cashflows – rent payable is 60% of the underlying EBITDA of the portfolio.

Accretive at 7.9%. The deal is accretive as the initial yield of the properties is 7.9% and compares favorably to the implied trading yield of 5%. When completed, CDL HT’s total portfolio value will increase by 15.7% to S$1.7bn. The deal is expected to be 100% funded by debt at an assumed all-in-cost of 4%. DPU is expected to spike up 6-9% to 11.4 Scts (FY10F) and 12.2 Scts (FY11F).

Maintain BUY, TP $2.11. We remain positive on this development given the strong accretion to earnings and high-income protection that the acquisition offers to the trust. Based on our estimates, the fixed income portion of the trust will increase to c4.0Scts per unit (assuming nil variable income), limiting downside to earnings. Maintain BUY