CDL H-Trust – CIMB

Backend-loaded contributions

While industry dynamics could weaken, we expect theimpact to be softened by upcoming tourist attractions, stronger Asian visitor arrivals and a refurbished Orchard Hotel. Balance sheet remains strong.We see value after its recent sell-down.

3Q11/9M11 DPU meets consensus and our forecasts, at 24%/70% of FY11. We expect backend-loaded contributions from a refurbished Orchard Hotel. Expecting lower REVPAR and payouts, we cut our DPU and DDM target (discount rate 8.6%). Still, maintain Outperform.

Completion of Orchard Hotel AEI

We expect the completion of upgrading work (mid-Sep 11) at its largest asset, Orchard Hotel, to buffer any softening in business in upcoming quarters. REVPAR for its local hotels expanded 6% yoy to S$211 or its second highest in history. Growth would have been stronger if not for upgrading work at Orchard Hotel, which took away 2,268 room nights (4%/1% of Orchard Hotel/total inventory) and weaker business travel in Aug.

Not expecting a repeat of 2009 yet

We do not expect a repeat of 2009 in
terms of tourist declines just yet with regional economies still expected to grow (albeit slower) and tourist arrivals in past months still fairly unscathed. We are, however, lowering REVPAR assumptions to factor in some slowdown. Management notes continued strong demand in Jul-Sep and attributed the less exuberant quarter to a weaker Aug from the presence of more public holidays this year.

Ammunition from strong balance sheet

We believe CDLHT’s low asset leverage of 26.5% continues to position it for debt-funded acquisition. Management remains prudent in retaining income to fund capex. With increased macro uncertainties, we are reducing distribution payout to 91% in FY12 (same as FY11) from 95%.