• CDLHT has, hardly surprisingly, acquired the Studio M Hotel from Millennium & Copthorne, for $154 mln ($156 mln including fees to be paid via issuance of new CDLHT units). (CEO Vincent Yeo had, in recent weeks, “hinted” of this possible transaction.)

• Studio M, which has 360 rooms and located in the Robertson Quay precinct, was completed only about a year ago.

• The acquisition is necessarily yield accretive, with net property yield of 6% based on the expected first year rent of $9.24 mln from M&C, which has been granted the master lease.

• On a pro-forma basis, DPU will rise 5% from 11.18 cents to 11.74 cents for a yield of almost 6% at $1.97.

• The acquisition is to be fully funded by debt given CDLHT’s debt headroom. Indeed, aggregate leverage will rise to a still comfortable 26.5% from 20.4%.

• We maintain BUY.

FY10 Results

•4Q10 revenue $33.3m, NPI $31.5m, distributable income $26.6m

•FY10 full year revenue $122.3m, NPI $115.1m, distributable income $92.0m

•4Q10 DPU of 2.78 cents, bringing full year DPU to 10.21 cents.

•Best year since listing, beneficiary of economic recovery

•Maintain Buy recommendation, target price $2.38

2010 was a good year for CDL HT. Full year numbers were very much in-line with our estimates. Revenue came in spot on with our forecast but DPU was 4% higher than our figure. 4Q10 revenue was $33.3 million (+5.4% q-q, +27.5% y-y), net property income was $31.5 million (+4.4% q-q, +27.3% y-y) and distributable income after deducting retained income was $26.6 million (+9.8% q-q, +18.5% y-y). For the full year, revenue came in at $122.3 million (+33.3% y-y), net property income was $115.1 million (+33.2% y-y) and distributable income after deducting retained income was $92.0 million (+28.2% y-y). 4Q10 DPU was 2.78 cents bringing full year DPU to 10.21 cents. The improved y-y performance was on the back of a strong economic recovery that boosted the tourism revenue. This translated into direct benefits for CDL HT. Average occupancy rate for the Singapore hotels was 88.6% (2009: 81.4%), RevPar was $191 (2009: $149). In addition to the strong domestic statistics, the Australia hotels portfolio which CDL HT purchased in 1Q10 also contributed to top- and bottom- line growth. Revenue contribution from Singapore, New Zealand and Australia was 81%, 7% and 12% respectively.

Property portfolio consists of 6 properties in Singapore, 1 in New Zealand and 5 in Australia. For the year, the portfolio recorded $51.4 million in revaluation surplus, a reflection of the strong underlying income. Total asset value is $1,787.1 million. CDL HT has total debt of $382.7 million with a gearing of 20.4%. The debt will be due in 2013.

Management gave an update on its Australia hotels with regard to the recent flooding. Similar to our note sent out on 5 January, the hotels are not physically affected and are still operational. To reiterate, the revenue stream from Australia is backed by a base and variable component whereby we estimate the variable component contributes approximately 1% to total portfolio revenue in FY2011E. CDL HT has performed strongly in FY10. We are still positive on the tourism sector for this year. We are forecasting FY11E DPU of 10.28 cents, translating to a dividend yield of 4.9%. We are maintaining our buy recommendation and target price of $2.38.

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%.

CDLHT set to acquire Studio M

Its income available for distribution to stapled security holders rose 29.3% to $28m in Q4 2010

CDL Hospitality Trusts (CDLHT), which yesterday posted substantial year-on-year increases in top and bottom lines for the fourth quarter as well as full year 2010 – is widely seen by analysts as poised to acquire Studio M Hotel in the Mohamed Sultan area, possibly this year.

The hotel, which opened in April last year and is owned by CDLHT’s sponsor, London-listed Millennium & Copthorne Hotels, is seen by the market as a logical acquisition target for CDLHT.

The trust manager’s CEO Vincent Yeo said yesterday that typically it takes about two to three years for a newly opened hotel in Singapore to stabilise its income and render it a suitable candidate for injection into a real estate investment trust (Reit).

‘But in this strong market, that has shortened considerably; a hotel like Studio M has already reached gestation within a nine-month period,’ he said.

When asked about target acquisition markets, Mr Yeo said: ‘Singapore still offers the best prospects in terms of visibility and growth potential.’

The trust’s strong Q4 and FY2010 financial performance was on the back of improved showing by its Singapore hotels amid the stellar recovery in the local tourism market, as well as contribution from the five Australian hotels CDLHT bought in February 2010.

CDLHT’s income available for distribution to stapled security holders rose 29.3 per cent year on year to about $28 million in Q4 last year. However, CDLHT will retain $1.4 million of this sum as working capital and distribute $26.6 million to security holders.

For full-year 2010, CDLHT posted a 32.7 per cent rise in total distributable income to $100.65 million – of which nearly $8.7 million will be retained as working capital, leaving nearly $92 million to be paid to security holders. This reflects a payout ratio of 91.4 per cent for FY2010, against 94.6 per cent for FY2009.

The FY2010 payout works out to 10.2 cents per stapled security – reflecting a distribution yield of 4.88 per cent based on CDLHT’s $2.09 closing price yesterday.

CDLHT, which makes distributions semi-annually, will pay security holders a total 5.31 cents per unit for the July 1-Dec 31 period last year – comprising 4.71 cents taxable income and 0.6 cent tax-exempt income.

CDLHT’s gross revenue rose 27.5 per cent year on year to $33.3 million in Q4 2010, while net property income improved 27.3 per cent over the same period to $31.5 million.

Singapore hotels posted a 14 per cent year-on-year rise in hotel revenue to $76 million with gross operating profit (GOP) climbing 15.4 per cent to $39.3 million. Revenue per available room (RevPAR) for the Singapore hotels rose 20.6 per cent year on year to $194 in Q4 2010 but was still shy of the record $222 achieved in Q2 2008.

The trust’s FY2010 total gross revenue grew 33.3 per cent to $122.3 million while net property income expanded 33.9 per cent to $115.1 million. Its Singapore hotels achieved a 19.1 per cent increase in revenue to $281.4 million with GOP improving 23.8 per cent to $146.8 million last year. RevPAR for the Singapore hotels surged 28 per cent to $191 in FY2010.

The five Australian hotels contributed $15 million gross revenue last year.

Mr Yeo highlighted that CDLHT’s Singapore hotels achieved their highest ever quarterly occupancies of 89-92 per cent from Q2 to Q4 2010 since the trust’s IPO in June 2006 due to the strong growth in visitor arrivals in Singapore in 2010, notwithstanding the addition of 5,468 new hotel rooms in the Singapore market last year.

He points to a structural boost in accommodation demand brought about by the opening of the two IRs last year, which led to rising leisure demand for hotel rooms during the weekend and festive holiday periods which boosted overall occupancy rates, while robust corporate demand was sustained during the weekdays.

As a result, CDLHT has enjoyed a narrowing in the gap between its Singapore hotels’ business on weekends (including Fridays) and weekdays since the two IRs opened. RevPAR during weekends was about 12-13 percentage points lower than on weekdays in Q4 last year; the gap used to be about 22 percentage points around the beginning of 2010, before the IRs opened, Mr Yeo said.

Friday occupancies now match those on weekdays (in the past they were noticeably lower) and Mr Yeo reckons this is due to corporate travellers being more willing to extend their stay to the weekends to check out the IRs and its attractions.

‘I still remain very upbeat about tourism prospects for Singapore. I see continued good years ahead,’ he added, citing new attractions that will open in coming years, expansion of the low cost carrier market, strong economic growth in Singapore and the region, and growth in the MICE business.

Standard Chartered Bank, which lists CDLHT as one of its top Singapore Reit picks, said yesterday: ‘We continue to believe CDLHT will make accretive acquisitions in 2011, given its low cost of equity (5.6 per cent 2011 estimated distribution per unit yield) and debt (2-3 per cent).’

•Tourism industry registered spectacular performance in Jan-Nov 2010

•CDL HT ahead of industry average

•Maintained buy, target price $2.38

Tourist arrivals hit another record in Nov’10, registering 960k which is the best record for a November month. Tourist arrivals from Jan-Nov have already crossed the ten million mark at 10,508,000. Cumulative 3-months total showed an improving trend with each successive quarter surpassing the previous quarter. Average RevPar also registered the highest value for the year during the Oct-Nov period. Traditionally, December is another strong tourist month and we are expecting the Oct-Dec period to be the best quarter of 2010. 2010 is a good year for the tourism industry. CDL HT benefitted greatly from being in an industry that directly services the tourism industry. CDL HT has managed to outperform the industry averages in terms of hotel occupancy and RevPar.

CDL HT has performed strongly in the first 9 months of 2010. Revenue improved 35.5% compared to the same period a year ago. Revenue of $88.9 million is approximately the same as FY09 revenue of $91.8 million. Hotel occupancy rate has improved 7 percentage points over FY09 and RevPar is 26.8% higher. Besides the general improvement in the Singapore hotel portfolio, there was also additional contribution from the Australia hotels portfolio which CDL HT acquired in Feb 2010. There might be some concern over the flood in Australia affecting CDL HT Australia hotels portfolio. Revenue contribution is approximately 13% out of which approximately 1% is the variable component. We had also checked with management and understand that operations were not affected.