CDLHTrust – UOBKH

Ride on the rising tourism in Singapore

CDL Hospitality Trusts (CDREIT) is a key beneficiary of rising tourism in Singapore, with 2,324 hotel rooms or 6.2% of total hotel room inventory. Its hotel portfolio is located strategically close to the CBD and Orchard Road area, which allows it to cater to both business and leisure travellers. The supply of hotel rooms in Singapore will increase only 3% and 4% in 2007 and 2008 respectively, compared with an estimated 6% annual increase in tourist arrival. We believe the hotel occupancy in Singapore will likely remain at a high 80% level, which could further spike up room rates in the next two years.

Room for growth via acquisitions. Since its listing in Jul 06, CDREIT has made two acquisitions valued at S$344m in total, increasing asset under management (AUM) by 35% to S$1.4b. With a low gearing (3Q07: 23%), the trust currently has a debt capacity of S$550m for asset acquisitions, assuming a 45% optimal gearing ratio. Given CDREIT’s acquisition track record and strong sponsor (Millennium & Copthorne Hotel plc), we are forecasting S$300m asset acquisition per year with an initial yield of 5.5% in FY08 and FY09.

Maintain BUY with target price raised to S$2.77, based on DCF (WACC: 6.1%; terminal growth rate: 1.5%). We expect DPU to grow at a CAGR of 16.7% from FY07 to FY09, underpinned by both acquisitions and organic growth. Acquisition growth contributes S$0.66/share or 24% of our fair value estimate. Following its recent share price correction, CDREIT now is trading at FY08 DPU yield of 4.8%. Yield accretive-acquisitions and RevPAR growth will be the key positive share price catalysts.

Key risks include an economic downturn, higher interest rates and slower-than expected
asset growth.