CDL H-Trust – DBSV

Room for growth

• 4Q12 results in line
  
• Challenges in operating environment in the near term
  
• Acquisitions to boost earnings performance; with more headroom, management remains on the hunt for more
  
• BUY, TP S$2.11 maintained
  

Highlights

4Q12 results in line. Gross revenue and NPI declined marginally by 1.4% and 0.2% y-o-y to S$38.3m and S$35.6m respectively. Performance of its Singapore hotels was flattish (excluding Studio M Hotel) to S$205/night (flat y-o-y, -1.5% qo-q) and while earnings from its Australia hotels were weaker due to the weaker AUD-S$ exchange rate. As a result, income available for distribution (after retained income) of S$ 28.1m was 0.9% lower y-o-y, translating to a DPU of 2.90 Scts ( -1.4% y-o-y).

Our View

Challenges in the near term; new competing room supply to limit significant hikes in room rates. We noted that occupancies for its Singapore portfolio remained fairly firm at 89.3% but the average daily rate was marginally lower at S$229/night (-1.3% y-o-y) The performance of its hotels was also slightly weaker due to a softer banquet business (which typically peaks in 4Q) but Novotel Clarke Quay hotel continue to be the top performer with a 11% y-o-y growth in revenues given its suite of renovated rooms. Looking ahead to 2013, management remains cautious on the near term outlook and expects the year to start off weaker with corporate bookings coming in stronger post the Chinese New Year in Feb. Looking ahead, with new incoming hotel supply over the coming quarters (4,138 rooms, +8% of current supply), we believe that further room rate hikes is likely to be limited (we are forecasting RevPAR growth of +3% in 2013).

Angsana Velavaru acquisition to boost performance; further acquisitions possible. The acquisition is expected to be soon and will contribute positively to earnings in the subsequent quarters. Gearing post acquisition remains conservative at c.29%, still below management’s comfortable level of 35%. Acquisitions are a likely feature and management remains watchful for opportunities and Japan, remains a likely target.

Recommendation

BUY maintained, TP S$2.11. Guidance for payout ratio to remain at 90% for FY13F and we have adjusted our numbers slightly to reflect this. CDREIT offers an attractive 4% CAGR in DPU over FY13-14F, with potential upside if further acquisitions are executed on. BUY, TP S$2.11. CDREIT offers a prospective 5.9-6.2% yield.