• Price fixed at $1.71, private placement of 116,960,000 new stapled securities

• Net proceeds approximately $196.4 million

• Maintain Hold, fair value at $1.92

One day after CDL HT announced the proposed private placement, it followed up with another announcement that book building for the private placement is closed and is oversubscribed. The issue price is fixed at $1.71, the lower end of the proposed price range and with the upsized option exercised, 116,960,000 new stapled securities will be issued. Trading is expected to commence on 1 July 2010.

The strong take-up indicates that there is strong interest in the stock among the placees. However share price fell 6.3% from its previous close of $1.89 to close at $1.77 yesterday. This is more than the ‘TERP’ we estimated at $1.86. We gather that existing shareholders were not too happy being left out of the placement exercise. Nevertheless, the balance sheet now looks stronger and more ready to act on any acquisition opportunities. Furthermore, we

are still a firm believer in the Singapore tourism sector and that CDL HT stands to benefit from the strong rebound in the sector.

We adjusted our forecasts to account for the dilution and the interest savings. These reduce our DPS forecasts for FY10E-FY12E by 6.5%-7.7%. We reduce our fair value from $1.96 to $1.92 and maintain our hold recommendation.

SINGAPORE – CDL Hospitality Trusts, which owns hotels in Singapore, Australia and New Zealand, said on Wednesday it has raised S$200 million by placing 116.96 million new units with investors at S$1.71 per unit.

The price is at the bottom of the indicative range set by CDL HT on Tuesday, and represents a 9.4 per cent discount to CDL HT's volume weighted average price on June 21.

CDL HT is raising the money to pay off part of its debt.

Looking beyond 2010

• Reiterate Overweight rating and Dec-10 DDM based price target at S$2.10/unit. CDREIT has underperformed FTSE STI and S-REITs Index by 8.5% and 7.5% in the last month. The stock is currently trading at 5.8%/6.7% FY10E/FY11E dividend yield and 1.0x FY10E forecast book, a level that is attractive in our view. Our recent meeting with management has also assured us that hotels under its portfolio, Singapore hotels in particular, are benefiting from increasing global travel and visitor arrivals. The upcoming 2Q results to be announced in July and the wholesale contract renegotiation also in July would be the two near-term catalysts in our view.

• Beginning of the rate recovery cycle. Occupancy for Singapore hotels remained at 85% despite an 11% jump in room rates and the increase in supply in April, indicating strength in the sector thanks to strong visitor arrivals, amounting to 3.6million Jan to Apr. Management indicated that it will continue to push up room rates given stable occupancy seen for its Singapore hotels at above 80% level. Given relatively little supply to come onstream in 2011, we see potential upside risks to our 2011 DPU estimates. Every 10% increase in Singapore hotel’s RevPar would increase our estimates by 11%.

• Accretive acquisitions are on the cards. Singapore and Japan would likely be the trust’s main target markets given the deal flow and the pricing. We see likely accretion of 2-4% to 2011E distributable income assuming a S$300million acquisition. The trust’s sponsor M&C currently owns Studio M Hotel in Singapore.

• Key investment risks: 100% of the trust’s debt is currently floating, any potential increase in interest rates would adversely impact CDREIT’s DPU. Gearing for the trust is currently at 30.7%. Potential acquisitions would likely require financing from equity fundraising in our view.

REVPAR growth beyond 2010

• In line; maintain Outperform; target price raised to S$2.20 (from S$2.01). 1Q10 results were broadly in line with Street and our expectations. DPU of 2.32cts (after deducting income retained for working capital) forms 21% of our full-year estimate and 22% of consensus, which we consider to be in line due to seasonal weakness. Revenue and DPU rose 18% yoy on maiden contributions from Australian hotels acquired in February, and a 16% increase in REVPAR from Singapore hotels. We believe the opening of Resorts World will change demand structurally, and increase our REVPAR assumptions for Singapore hotels for 2010-11. Our DPU estimates increase by 5-6% for FY11-12, while our DDM-based target price rises accordingly to S$2.20 from S$2.01 (discount rate 8.6%). CDLHT offers a prospective total return of 19.9% from potential price upside of 14% and forward dividend yields of 5.9%. We see catalysts from continued REVPAR growth beyond 2010.

• Singapore REVPAR up 16% yoy despite 1,350 new rooms from Resorts World. The increase in REVPAR came from a 9.5%-pt improvement in occupancy to 84.3%, and a modest 3% yoy increase in room rates. This was also the first qoq increase in average room rates since they started to decline in 3Q08. Occupancy was buoyed by higher visitor arrivals for the Singapore Airshow in February and International Furniture Fair in March. Visitor arrivals have been breaching records in the four consecutive months since Dec 09, following the opening of Resorts World Sentosa. Management guided that April REVPAR improved 38% for Singapore hotels, with improvements in traditionally-weak weekend occupancy. We believe occupancy and room rates for the rest of the year will continue to strengthen with the opening of Marina Bay Sands this month.

• Changes in assumptions. We increase our REVPAR assumptions for Singapore hotels by 11-14% (from 5%) for FY11-12 in the belief that structural changes in demand for weekend stay in Singapore hotels will sustain occupancy above 85%.