CDL H-Trust – Phillip

Acquisition

• Buys 5 hospitality properties in Australia at a purchase consideration of A$175 m
• Fixed rent portion from properties more than 90%, providing more stability to overall portfolio
• Gearing increases approximately to 30.0%
• Maintain hold recommendation, fair value raised to $1.96

Acquisition

CDL HT announced that it has entered into sales and purchase agreements to purchase 5 hospitality properties located in Australia for a purchase consideration of A$175 million (S$220.9 million). The purchase price is 8% below the market valuation of A$190.4 million. The properties come with a relatively long term lease agreement which expires in 2012 and rental comprises of a fixed component and a variable component. The lessee will pay an annual fixed rent of A$13.7 million and 10% of excess net operating profit. The fixed rent portion is approximately 93% of total rent.

With the addition of the Australia properties, the portfolio now consists of 80% Singapore properties, 14% Australia properties and 6% New Zealand properties. Revenue contribution from Singapore will decrease from 90% to 79%, New Zealand revenue will decrease from 10% to 8% while Australia will contribute 13% to total revenue.

The properties are acquired at a net property yield of 8.4%, which will bring accretion to the portfolio pre-acquisition net property yield of 5.4%. The properties are purchased at a cost of A$153,600 per key, in contrast to the replacement cost estimated by CBRE and Davis Langdon Australia Pty Ltd of A$376,000 – A$449,000 per key. The properties have achieved an average occupancy of more than 80% from 2007 to 2009. Average RevPAR for the properties in 2009 was A$116.

Funding

The acquisition is to be wholly debt funded through an equal weightage of AUD loan and SGD loan. The loan is funded by a multi-currency bridging facility that has a maturity period of one year. We estimate total loans will increase to $524.6 million. Gearing post acquisition will rise to 30%.

Financial Impact

With the contribution from Australia, the portfolio income stream is strengthened, as the minimum rent income will increase from 50% to approximately 56%. The addition also diversifies the geographical concentration. We think that CDL HT has made a good acquisition, considering the stability it brings to the overall portfolio and the attractive valuations of the properties. The initial portfolio has almost 90% of revenue contribution from Singapore and there is a lot of optimism built into Singapore tourism industry. The revenue stream from Australia will buffer the impact if the optimism fails to materialize. We add in the contribution to our projections, which, gives us a revenue growth for FY10E of 29.3%. Our adjusted DPU forecast for FY10E is 9.9 cents, up from our initial forecast of 9.02 cents. We raised our fair value to $1.96 and maintain a hold recommendation.