CDL H-Trust – CIMB

Factoring in acquisitions

• Maintain Outperform with higher target price of S$2.30 (from S$2.04). Visitor arrivals to Singapore crossed the one-millionth mark for the first time in its history in Jul 10. We believe the surge was not just the result of seasonality, but an indication of long-term uptrends in hotel demand in Singapore. Acquisitions appear possible in the near term for CDLHT with the sponsor’s Studio M operating above market occupancy rates. We factor in S$300m worth of acquisitions for 2010-11, lower cost of debt and lower payouts. Our DPU estimates fall by 5% for 2010 before rising 3% for 2011-12. Our DDM target price (discount rate 8.6%) rises accordingly to S$2.30.

Although CDLHT is trading at a premium to its peers, its P/BV has yet to reach the peak of divergence with ART and the FSTREI during its last peak in 2007. Larger than-anticipated acquisitions and stronger-than-anticipated room-rate growth in its upcoming 3Q10 results could provide stock catalysts, we believe.

• 3Q10 results likely to shine. Occupancy at all its Singapore hotels had already surpassed 90% in 3Q10, according to the company, some way above the technically full rate of 85% and above the islandwide average of 89.8% in Jul 10. At these saturated levels, we believe room rates could surprise on the high side.

• Refinancing S$350m. In August, CDLHT paid in advance its S$350m S$-term loan facility with proceeds from an issue of S$260m fixed-rate notes and variable-rate notes from its MTN programme. With the refinancing, all-in cost of debt is expected to go down by 50bp to 3.5%. Also, CDLHT’s Singapore assets which were earlier pledged to the term loan are now fully discharged.