BENEFITTING FROM FOCUS ON QUALITY TOURISTS

•Doubling GDP contribution

•Quality tourists and high-end hotels

•Slower supply growth for high-end hotels

Growing influence of hospitality

We think it is notable that the Singapore Tourism Board (STB) is targeting a possible doubling of tourism’s GDP contribution to 8%. In 2011, tourism accounted for 4.1% of GDP, substantially higher than the 3.6% in 2010 and 2.4% in 2009. In 1Q12, real GDP grew 1.6% YoY while the Accommodation & Food Services sector (a rough proxy for tourism) grew faster at 4% YoY. For 2012, STB is aiming for S$23-24b in tourism receipts, implying a 3.6-8.1% YoY increase. The target growth rate, which STB has indicated could be revised upwards, is significantly higher than the official 2012 GDP growth forecast of 1-3% and highlights the increasing importance of tourism.

Stronger performance for high-end hotels

The STB has recently highlighted that it wants to focus on attracting quality tourists who spend more, as opposed to simply trying to grow the absolute number of tourists. This emphasis will probably continue to benefit high-end hotel players like CDLHT. For 1Q12, tourist arrivals jumped 14.6% YoY to 3.5m. Based on preliminary figures, high-end Singapore hotels showed RevPAR growth of 14.5% in 1Q12, outperforming budget hotels (+5.5% YoY). The robust RevPAR growth for high-end hotels was supported by larger increases in rental rates. We believe that our 7.5% RevPAR growth rate assumption for CDLHT’s Singapore hotels in 2012 is not aggressive.

Favorable supply dynamics for high-end hotels

Updating our in-house hotel database, we forecast that overall hotel room supply will increase by 3.7% p.a. for 2012-2015, comfortably outstripped by hotel room demand growth of 6.4% p.a. High-end hotel room supply will grow by 3.0% p.a., slower than the 5.3% p.a. for budget hotels. The temporary closing of Pan Pacific Singapore for renovations from Apr to Aug has also taken 778 high-end rooms off the market.

Maintain BUY

We maintain our BUY rating on CDLHT and our RNAV-derived fair value estimate of S$2.04.

Inspiring quarter with stable growth going forward

1Q12 DPU better than expected. CDL Hospitality Trust (CDL-HT) reported 1Q12 DPU of 2.78S¢ (+16.8% YoY), equivalent to 25.0% of our FY12 DPU estimate. Gross revenue and RevPAR came in at S$38.4m (+19.0% YoY) and S$213.0 (+9.3% YoY) respectively, on the back of strong visitors arrival during 1Q12 and a revenue boost of S$2.7m from the acquisition of Studio M Hotel in May 2011. In the subsequent quarters, we expect CDL-HT to continue to register strong numbers on the back of 1) continual growth in Singapore’s tourism; 2) demand continues to outstrip supply of new hotels and 3) strong RevPAR in 2012. Given the bright prospect in the tourism industry of Singapore, we maintain our BUY call on CDL-HT with an increased DDM based (COE: 8.6%, terminal growth: 2.0%) TP of S$2.20. With CDL-HT currently offering a forecasted 2012 yield of 6.3% and trading at 4.9% spread vs the historical and pre-crisis mean of 4.5% and 2.6% respectively, our TP represents a spread of 3.9% posting a potential upside of 17.6%.

Respectable results from organic growth and Studio M Hotel. CDL-HT’s strong set of results are mainly attributed to the organic growth of the trust’s portfolio and a boost of S$2.7m in revenue from its Studio M Hotel. The organic growth of the trust is a combination of factors resulted from its completed refurbishments at Orchard Hotel and Clarke Quay, strong visitor arrivals during 1Q12 and record high 1Q RevPAR. Concurrently, the trust’s portfolio in Australia continues to perform strongly as it is bolstered by the buoyant natural resource sector and static supply of hotel rooms.

Much headroom for future acquisition. Currently, with a low gearing ratio of 25.6% and an internal maximum gearing rate of 40% (which translates to an additional S$301m of debt the trust can take on), there is much room for CDLHT to undertake future acquisitions in Asia. CDLHT has a BBB- rating from Fitch.

Continues to remain strong. As tourism in Singapore continues to remain robust, together with the impeccable management skills of CDL-HT and the ability to tap on potential pipeline of assets from both M&C and CDL, we expect CDL-HT’s performance will continue to remain solid. Given limited additional hotel supply in the coming years together with a growing range of new attractions and strong event calendar in 2012, we believe CDL-HT is well positioned to benefit from this stable demand.

Positive on hospitality market

Company Overview

CDL HT is a stapled group comprising both REIT and Business Trust structures. Its mandate is to invest in a diversified portfolio of income-producing real estate which is primarily used for hospitality and/or hospitality related purpose.

• 1Q12 revenue $38.4mn, NPI $36.0mn, distributable income $26.9mn

• 1Q12 DPU of 2.78 cents

• Raise FY14-16 DPU estimates by 5.6%-6.0%

• Maintain Accumulate with target price increased to S$2.000

What is the news?

CDL HT delivered a set of remarkable performance, registering the highest recorded 1Q RevPAR of S$213 since the inception of CDL HT, partly due to a record high occupancy of 88.5%. Gross revenue and net property

income came in at 19% and above to $38.4mn and $36.0mn respectively in 1Q12. The double-digit jump was mainly attributable to the absence of Studio M Hotel in 1Q11 and higher receipt of variable income from the Australia Hotels. DPU gained 16.8% y-y to 2.78 cents, owing to the 17.7% rise in distributable income after deducting the retained income. This implied 24.1% of our FY12 DPU estimates.

How do we view this?

1Q DPU was broadly in-line with our expectation despite not being able to achieve a quarter of our FY12 DPU estimates. As we believe the already high RevPAR will continue to gain traction for the subsequent quarters, with tourism hot spots such as Garden by the Bay (Phase 1), the River Safari, and the Marine Park at Resorts World Sentosa opening in the rest of 2012. These new attractions are expected to draw more visitor arrivals barring any negative major events.

Investment Actions?

The positive outlook has prompted us to raise FY14-16 DPU estimates by 5.6%-6.0%. This lifted our price target to $2.00 but no change our Accumulate call.

CDLHT's Q1 distribution per security rises 16.8%

Gross revenue up 19% to $38.4m; NPI rises 19.6% to $36m

CDL Hospitality Trusts (CDLHT) has posted distribution per stapled security of 2.78 cents for the first quarter ended March 31, 2012, up 16.8 per cent from the same year-ago period. The payout is after retaining 10 per cent of income available for distribution as working capital to fund capex on asset enhancement initiatives.

Before deducting income retained for working capital, the Q1 2012 distribution per stapled security is 3.09 cents, up 17 per cent year on year.

The group's Q1 2012 combined weighted average stats for its Singapore hotels excluding Studio M, which was acquired on May 3, 2011, showed that their revenue per available room (RevPAR) and average occupancy rate were also the group's best-ever Q1 performance.

Fuelled by the general increase in visitor arrivals and bolstered by the Singapore Airshow in February 2012, RevPAR for the Singapore hotels excluding Studio M rose 9.3 per cent year on year to $213 in Q1 2012, while their average occupancy rate increased 2.7 percentage points over the same period to touch 88.5 per cent. The average daily rate rose 6.2 per cent year on year to $241.

SOLID SET OF RESULTS

•Good 1Q12 results

•Record Singapore hotel performance

•Tourism attractions coming up

Solid 1Q12

For 1Q12 ended Mar 2012, CDLHT recorded a 19% YoY in gross revenue of S$38.4m. The increase was from strong organic growth, maiden 1Q contribution of S$2.7m from Studio M Hotel, and the receipt of a full-year’s variable income of S$1.8m versus S$0.84m recognised for an 8-month period in 1Q11 for Australia hotels. Net property income grew 20% YoY to S$36.0m. Total return for the period climbed 24% to S$28.6m. After deducting income retained for working capital, income available for distribution per security climbed 17% YoY to a 1Q record of 2.78 S-cents, which translates into an annualised DPU yield of 6.0% based on yesterday’s close of S$1.87. The results were in-line with our forecasts.

Record numbers for Singapore hotels

Excluding Studio M Hotel, which was acquired in May 2011, Singapore hotels saw RevPAR grow 9.3% YoY to S$213, the highest 1Q RevPAR since the inception of CDLHT. Average occupancy grew by 2.7 ppt from the corresponding period last year to a 1Q record of 88.5%. Average daily rate grew by 6.2% YoY to S$241. For Novotel Singapore Clarke Quay, an upgrade of the bathrooms and room touch-ups for the remaining 44 guest rooms was completed in mid Jan 2012. The Australia hotels continued a strong performance, boosted by a buoyant natural resources sector and a static supply of hotel rooms.

Exciting year for tourism

Upcoming attractions of note include Phase One (Bay South) of the 101-hectare Gardens by the Bay, the River Safari (Asia’s first riverthemed wildlife park) and the Marine Life Park at Resorts World Sentosa. We believe that they will continue to enhance the experience of tourists. While the supply of new hotel rooms in Singapore is expected to grow by 3.1% YoY according to Howard HTL, we believe that demand growth will outstrip supply growth.

Maintain BUY

We maintain our BUY rating on CDLHT and our RNAV-derived fair value estimate of S$2.04.