CDL H-Trust – DBSV

Scaling new peaks

• A new record in 4Q10

• Refurbished rooms at Novotel Clarke Quay, Orchard Hotel to underpin earnings growth from FY12

• Maintain Buy with DDM-based TP of S$2.30

4Q10 – a record quarter. Both revenue and net property income grew by a robust 27% y-o-y to S$33.3m and S$31.5m respectively as CDL HT’s Singapore hotels continued to enjoy strong demand. RevPAR rose 20% to S$194/night on the back of high occupancy of 90%, supported by earnings contribution from its Australia acquisitions (back in 1Q10). Distributable income rose to 19% to S$26.6m after taking into account S$1.4m retained for working cap purposes. The trust also recorded a slight increase in NAV to S$1.52.

Refurbishment will underpin higher rates from FY12. Singapore operations to drive DPU growth going forward, backed by expectations of a further 15% hike in RevPAR to S$220/night, while overseas operations should remain stable. In addition, CDL HT plans to refurbish rooms in Novotel Clarke Quay (NCQ) and Orchard Hotel (OCH) in FY11, with minimal disruption to operations. Capex for NCQ will be borne by CDL HT while the lessee will bear the capex for the latter. After completion, we expect these refurbished rooms to fetch c10% higher rates. Our estimates have been revised slightly upwards to reflect this.

BUY, TP raised to S$$2.30. Management is guiding for a payout ratio of 90-95% going forward subject to working cap requirements. With the bulk of its capex requirements already accounted for, we maintain our 95% payout ratio for FY11 and onwards. The stock offers a prospective FY11-12F yield of 5.7- 6.4%. Re-rating catalyst likely to stem from acquisitions, which CDL HT has the financial capacity to deliver given its lowly geared balance sheet of 20.4%.