CDLHTrust – CIMB

Bracing for a rough ride

• Weak 4Q08 results but FY08 in line. 4Q08 results were weak, with DPU of 1.8cts forming only 16% of our full-year estimate. However, due to strong performances in the earlier three quarters, full-year DPU of 10.62cts was in line with Street and our expectations, at 95% of our estimate. Full-year gross revenue of S$114.7m was up 26.5% yoy on strong average room rate (ARR) growth of 23.9% to S$244. Compared with 4Q07, portfolio occupancy in 4Q08 declined 4.9% pts to 83.7% although ARR still grew by a modest 3.7% to S$224. REVPAR in 4Q08 was S$188, down 1.6% from 4Q07.

• Increased property expenses and tax adjustments hit NPI. 4Q08 net property income (NPI) of S$21.7m was down 19.4% yoy due to: 1) a one-off S$3.2m additional property tax with respect to 2006 and 2007, based on revised assessments by IRAS in Dec 08; 2) an increase in the computation of the annual value of hotels to 20% of gross room receipts (previously 15%) from 1 Jan 08; and 3) S$1.3m paid to the MCST of the Liang Court complex for replacement and refurbishment works.

• Reducing payout to 90%; tightening expenses. Going forward, management‘s focus would be on: 1) maximising revenue by concentrating on non-transient hotel stayers such as airline crew and increasing weekend stays; 2) cost containment through increasing staff productivity; and 3) capitalising on economies of scale through the M&C group. Management will be distributing 90% of its taxable income for 1 Jul-30 Dec 08, instead of 100%. Although this would attract an 18% corporate tax on the S$4m retained, management defended its decision on the basis of an increase in financial flexibility and discipline in capital management. The 10% retention of distributable income reduces paid-out DPU by 4.5%.

• Maintain Underperform; lower target price of S$0.68 (from S$0.77). We reduce our payout assumptions from 100% to 90% and our DPU estimates for FY09-10 have been lowered by 10% accordingly. We also introduce FY11 forecasts. At 0.46x P/BV, CDLHT is more expensive than its hospitality peer, ART (0.38x). In view of continuing slowing visitor arrivals, catalysts appear lacking for 1H09. Maintain Underperform.