CDLHTrust – CIMB
Negatives priced in
• Meeting expectations. 3Q08 results were in line with consensus and our estimates. DPU of 2.93cts grew 24.2% yoy to form 26% of our forecast of 11.2cts for FY08. Gross revenue of S$29.1m was up 21.3% yoy on double-digit revenue per available room (REVPAR) growth in its Singapore properties. YTD DPU forms 78.5% of our full-year estimate, in line.
• Average room rates up but occupancy slow. Room rate increases for Singapore hotels remained strong at 27.6% on a yoy basis, boosted by F1 in September. However occupancy levels slowed from the high base in 3Q07, dropping 4.4- percentage points to 85.5%
• Debt facilities due in Jul 09. All of CDLHT’s debt of about S$297m would be due for refinancing by Jul 09. All-in cost of funding as at Sep 08 was 3.1%. With CDLHT’s low asset leverage at 19.3%, high interest cover of 12.2 times, BBBrating and strong sponsor M&C, we believe that refinancing would not be difficult for the company.
• Changes to assumptions. In line with our house view that the US financial crisis could result in a marked slowdown in Asia, we cut our REVPAR forecasts (a function of occupancy and average daily rates) to reflect between 10-20% decline in FY09-10. Separately, we remove our earlier acquisition assumptions of S$300m per annum over FY09-10 as we do not expect any acquisitions in the current credit climate. We also increase our cost of debt assumptions by another 50bps from FY09.
• Maintain Neutral at lower target price of S$0.77 (from S$1.78). Following our adjustments, our FY09-10 estimates decrease by 19-29%. We apply a higher discount rate of 10.8% (previously 8.5%) to our DDM valuation to reflect increased risks for the short-stay tenures of the hospitality industry in this climate vs. other property segments (average 3-year leases). Our earnings reductions account for 72% of the change in our target price. Our new target is S$0.77 (from S$1.78). CDLHT’s sharp price fall of 77% since Jan 08 has priced in the negatives of slowing growth. Maintain Neutral.