CDL H-Trust – BT

Locked and loaded

• Shoring up balance sheet with S$197m from placement with slight dilution to earnings

• Armed with strong financial muscle to acquire assets with gearing at only 19%

• Maintain BUY, TP adjusted to S$2.03. Additional 18Scts upside to TP assuming S$400m of acquisitions

Shoring up balance sheet. CDL HT recently completed a placement of new shares (116.9m new units, representing 13% of share capital), raking the trust S$197m in net proceeds, which included exercising an upsize option to raise an additional S$50m. These proceeds will be utilized towards paying down current debt obligations, resulting in the trust having a lower gearing ratio of c19%, down from 31% previously.

Minimal adjustment to DPU of up to 6%. Dilution to DPU of c5-6% in FY10-11F to 10.8 Scts and 11.6 Scts, respectively, due to the enlarged share base offset by interest savings from the repayment of its loans (S$116m towards repayment of S$ bridging loan for its Australian acquisition & remaining S$80m for the repayment of its loan facility with DBS Bank).

Low gearing level of 19% opens up acquisition possibilities. With a re-capitalized balance sheet, CDL HT stands strong with the financial muscle to undertake larger acquisition opportunities, estimated up to S$400m, assuming a long term gearing target of c35%. This financial flexibility will come in handy when CDL HT participates in any opportunistic tender sale exercise where the ability to close the deal fast is key.

Maintain BUY, TP adjusted to S$2.03. Our target price is adjusted 7% downwards to S$2.03 to take into account the enlarged share cap. Our numbers do not assume any acquisitions. Assuming acquisitions of S$400m on a gearing of 35% could add a further 18Scts to our target price.