CDL H-Trust – DBSV

Approaching blue skies

• 2Q10 results a prelude to stronger 2H10

• Acquisitions are likely. Assumed S$150m in our models

• Maintain BUY with revised TP of S$2.14

2Q10 a strong quarter. 2Q results were in line. Gross revenue increased 51.9% yoy to S$30.7m boosted by the robust portfolio performance and added contributions from Australian portfolio. Net property income rose by an encouraging 43% yoy to S$20.6m. 2Q RevPAR grew to S$195 (+45% yoy, 6% qoq). Income available for distribution came in at S$21.7m (DPU of 2.87 Scts), before retained income for working capital purposes. For 1H10, CDL HT will be distributing 4.89 Scts.

With continual room rate hikes, CDL HT will reach previous RevPAR peaks of S$222/night in 2011. We expect continued demand squeeze for rooms in 2H10 on the back of upcoming events, Youth Olympics Games and Formula One. Its hotels are relatively full at average occupancies of 89%. Hence CDL HT will deliver stronger earnings through incremental room rate hikes. In addition, FY11 earnings will benefit from the renewal of CDL HT’s global corporate accounts, which were locked in at low average rates back in Sept-Nov’09. Hence, we raised FY11 RevPAR growth to 15% (from +12% currently) in anticipation of higher secured rates.

Geared for growth – assuming S$150m worth in acquisitions by end 2010. Management is on the lookout for assets (in Singapore, Japan as well) and we expect the trust to make the acquisitions within the next 6 months. Studio M, currently held by its sponsor is a likely target, as the hotel is currently operating at >90% occupancies and room rates of S$150-S$170 per night. We have assumed asset injection of S$150m @ 6.5% yield, funded by debt.

BUY, TP adjusted to S$2.14. We raised our TP to S$2.14 (from S$2.03 previously) on higher FY11 earnings with new acquisition assumptions. We strongly believe that CDL HT is at the beginning of a multi-year secular recovery in the local tourism sector. Execution on acquisitions will drive earnings growth and act as future catalysts for the stock. Stock offers an attractive FY11 yield of 6.5%