CDL H-Trust – DMG

Inspiring quarter with stable growth going forward

1Q12 DPU better than expected. CDL Hospitality Trust (CDL-HT) reported 1Q12 DPU of 2.78S¢ (+16.8% YoY), equivalent to 25.0% of our FY12 DPU estimate. Gross revenue and RevPAR came in at S$38.4m (+19.0% YoY) and S$213.0 (+9.3% YoY) respectively, on the back of strong visitors arrival during 1Q12 and a revenue boost of S$2.7m from the acquisition of Studio M Hotel in May 2011. In the subsequent quarters, we expect CDL-HT to continue to register strong numbers on the back of 1) continual growth in Singapore’s tourism; 2) demand continues to outstrip supply of new hotels and 3) strong RevPAR in 2012. Given the bright prospect in the tourism industry of Singapore, we maintain our BUY call on CDL-HT with an increased DDM based (COE: 8.6%, terminal growth: 2.0%) TP of S$2.20. With CDL-HT currently offering a forecasted 2012 yield of 6.3% and trading at 4.9% spread vs the historical and pre-crisis mean of 4.5% and 2.6% respectively, our TP represents a spread of 3.9% posting a potential upside of 17.6%.

Respectable results from organic growth and Studio M Hotel. CDL-HT’s strong set of results are mainly attributed to the organic growth of the trust’s portfolio and a boost of S$2.7m in revenue from its Studio M Hotel. The organic growth of the trust is a combination of factors resulted from its completed refurbishments at Orchard Hotel and Clarke Quay, strong visitor arrivals during 1Q12 and record high 1Q RevPAR. Concurrently, the trust’s portfolio in Australia continues to perform strongly as it is bolstered by the buoyant natural resource sector and static supply of hotel rooms.

Much headroom for future acquisition. Currently, with a low gearing ratio of 25.6% and an internal maximum gearing rate of 40% (which translates to an additional S$301m of debt the trust can take on), there is much room for CDLHT to undertake future acquisitions in Asia. CDLHT has a BBB- rating from Fitch.

Continues to remain strong. As tourism in Singapore continues to remain robust, together with the impeccable management skills of CDL-HT and the ability to tap on potential pipeline of assets from both M&C and CDL, we expect CDL-HT’s performance will continue to remain solid. Given limited additional hotel supply in the coming years together with a growing range of new attractions and strong event calendar in 2012, we believe CDL-HT is well positioned to benefit from this stable demand.