CDL H-Trust – DMG

Tourist arrival booster continues

1Q11 DP U rose 2.6% YoY. CDL Hospitality Trusts (CDLHT) reported DPU of 2.38S¢ (+2.6% YoY; -14.4% QoQ), representing 20% of our FY11 DPU estimate. Stripping out the one-off exchange gain in 1Q10, DPU for 1Q11 grew 23.5% YoY. Gross revenue grew 21.4% YoY in 1Q11 (-3.1% QoQ) mainly due to 1) full three-month contributions from the Australia Hotels acquired in Feb 2010 (vs 41 days of contributions in 1Q10), and higher RevPAR for Singapore Hotels at S$195 (+12.1% YoY; +0.8% QoQ). We expect the acquisition of Studio M Hotel to be completed in May 2011 and this will boost CDLHT’s DPU in subsequent quarters. Maintain BUY and unchanged TP of S$2.46, based on DDM (COE: 8.4%; TGR: 3.0%).

Tourist arrival growth expected to remain strong. The Singapore Tourism Board projects tourist arrival numbers to grow 7.9%/year to 17.0m in 2015. In addition, the recent nuclear crisis in Japan could potentially boost Singapore’s tourist arrival further in FY11. Given the positive outlook, we believe CDLHT will continue to benefit from high occupancy rate as well as rising ARR. AOR and ARR for CDLHT’s Singapore hotels in 1Q11 are 85.7% (+1.7ppt YoY; -4.3ppt QoQ) and S$228 (+10.1% YoY; +6.0% QoQ) respectively.

Studio M hotel acquisition to boost DPU in subsequent quarters. The EGM for the acquisition of Studio M will be held on 29 Apr 2011. Based on assumed debt cost of 3.5% and net property income yield of 6.1%, we estimate the new addition will contribute 0.3-0.4S¢ to FY11-12 DPU respectively.

Post acquisition gearing of 26.9% implies debt headroom of ~S$240m. Based on 1Q11 total asset of S$1.8b and target gearing of 40%, we estimate CDLHT is able to take on another S$240m worth of debt to bolster its cash pile for further acquisitions or AEI following the acquisition of Studio M Hotel which will be fully funded by debt.