CDL H-Trust – DMG

Experiencing supernormal organic growth

2Q10 results beat street’s expectations. CDLHT reported 2Q10 DPU of2.87¢ (+38.6% YoY; +11.2% QoQ), in-line with of our FY10 DPU forecast of 11.1¢ but 10% above street’s forecasts of 10.3¢. Net property income surged 49% YoY to S$28.7m on the back of higher RevPARs achieved for all of its hotel properties. RevPAR rose 45% YoY (above our 30-43% estimates) due to a 13ppt surge in occupancy to 89% and 24% rise in average daily rate of S$220. Maintain BUY, DDM-derived TP of S$2.30. Our top S-REIT pick.

1m visitors in July – a banner figure for the media. Visitor arrivals continued to power ahead, surging 27% in June, chalking 7 consecutive months of record visitor arrivals. Judging from the current growth momentum, we expect Singapore visitor arrivals to cross the 1m figure in July (possibly even hitting 1.1m) – a banner figure for the media. The Singapore Tourism Board (STB) is expected to publish those figures between 25-27 Aug. We expect the pipeline of events such as the inaugural Youth Olympic Games (August) and Singapore Grand Prix (September) to augment the buzz within the sector; hence creating significant euphoria and engendering further yield compression for CDLHT. According to management, STB was sanguine that visitor arrivals may even surpass current expectations of 11.5-12.5m visitors for 2010.

Acquisition on the cards; Studio M hotel could be next. Management hinted that they may undertake another acquisition within a few months and Studio M hotel could be its top acquisition choice given the shorter-than expected gestation of Studio M; with occupancy over 90% and ARR of ~S$170. CDLHT is also on a lookout for hotels in Japan which offer yields of 6-7%.

Maintain BUY; our top S-REIT pick. We maintain our TP of S$2.30, in view that strategic acquisitions will likely boost longer-term DPU growth potential. Recent cash call confirms management’s interests in undertaking strategic acquisitions within the next few months. Stock trading at attractive FY11 yield of 6.4%.