– We believe CDREIT, a BNP Top Pick, will enjoy higher RevPAR in fiscal 2007 and 2008, underpinned by the uptrend in tourist arrivals and the supply crunch. We forecast a 30% and 25% jump in the average room rate of CDREIT’s portfolio of Singapore hotels in 2007 and 2008, respectively. Maintain BUY, with a revised target price of SGD2.81.

– Upgrading our RevPAR assumptions . We raise our RevPAR growth assumptions for CDREIT’s portfolio of Singapore hotels to 37% for 2007 (27% previously) and 28% for 2008 (21% previously), underpinned by a combination of both increasing room rates and improving occupancies.

– Rising demand and limited supply should propel room rates to new highs in 2007 and 2008 , The Singapore hotel industry has witnessed robust growth led by the strong tourism uptrend and the hotel shortage situation. The new supply of rooms is likely to be limited to only 2% in 2007 and 7% in 2008, with visitor growth estimated to rise 6-7% annually. With the emergence of low-cost carriers throughout Southeast Asia, interregional travel should grow rapidly. Singapore is also seeking a bigger slice of the multibilliondollar meetings, incentives, conventions and exhibitions (MICE) market, which is expected to grow to 100m in the Asia-Pacific by 2015, from 50m at present. We see greater vibrancy in the leisure and business travel space, considering the host of measures undertaken by the government to strengthen Singapore’s tourism offering.

– Upward revision in hotel rates to drive DPU growth . CDREIT’s strong operating trends will continue to feed through to 2008. We raise our 2007 earnings estimates to SGD68.8m from SGD66.7m, which is premised on the assumption of a portfolio average room rate (ARR) of SGD212 (SGD202 previously), average occupancy of 87% (85% previously) and a further SGD276m worth of acquisitions in 2H07 at an NPI yield of 5.5%.

– New target price of SGD2.81, based on DDM valuation . We maintain our BUY rating on CDREIT and have upgraded our target price to SGD2.81 from SGD2.28. Our 12-month target price is based on DDM, using a WACC of 6.3% and a terminal growth rate of 1%. We have adopted the DDM approach given the steady income distributions from the REIT structure. DDM also captures the longer-term impact of sustained growth in DPU.