Ripe for a picking

• Downgrade to Underperform; target price raised to S$1.48 (from S$1.41). CDLHT’s performance met both the Street and our expectations. We lower our interest rates assumptions and roll our target price one year forward, resulting in an augmented DPU and target price. Nonetheless, as its share price has rallied since our last Neutral recommendation, we believe it is time to lock in profits.

• DPU in line. YTD 3Q09 distributable profit (S$49.3m) and DPU (5.9cts) formed 73% of our previous full year forecast of S$67.7m and 8.1cts respectively. Payout to unitholders remained at 90%. 3Q09 DPU of 2.04cts declined 30% yoy due to lower revenue per available room (REVPAR) achieved by the Singapore hotels to S$154 in 3Q09 compared to S$214 in 3Q08. However, on qoq basis, DPU was up 7.7% due to strong recovery in REVPAR.

• Visitor arrivals growth positive, REVPAR up. REVPAR for CDLHT’s Singapore portfolio jumped 15% qoq. This is mainly the result of sharply recovering occupancy (86.1%, +10.6% qoq) in 3Q09 as visitor arrivals to Singapore recovered 7% after 15 months of decline. Average room rates remained relatively flat at S$179 (+0.6%).

• Working to refinance at lower interest rates. Management hopes to capitalise on declining borrowing spreads and refinance its debt on lower borrowing cost. We believe that it would be possible to see lowered interest rates by 1Q10.

• Room rates could move up in the last quarter. As CDLHT’s rooms move towards full occupancy, we believe room rates would be ready to move in tandem in 4Q09. Both integrated resorts have indicated that they intend to price their new hotel rooms at a premium to existing hotels. With the key competition holding up on prices, we believe that CDLHT is well-positioned to move room rates up soon.

• Changes to assumptions. We moderate our cost of debt assumptions from 4% to 3.5% in FY09 and 3% in FY10. Our DPU estimates increase 2-4% in FY09-10. We roll our target price one year forward, and have a higher DDM-derived target price of S$1.48 from $1.41 (discount 9.1%). Whilst we are confident that CDLHT is able to meet our expectations for FY09, its share price has continued to rally up strong even after our last downgrade to a Neutral recommendation. We believe it would be timely to lock in profits at this time. Downgrade to Underperform.

A fantastic run

• Results signify a demand recovery
• Positive vibes on sector should be priced in
• Looking for further catalysts for re-rating, downgrade to HOLD, TP S$1.57

Easing declines from demand recovery. Gross revenues of S$22.9m (-21.4% yoy , +11.9% qoq) and net property income of S$21.4m (-21.5%yoy, +11.5% yoy) were in line. Sequential growth in 3Q09 was on the back of a 15% growth of average portfolio RevPAR to S$154. Income available for distribution of S$16.9m translated to a DPU of 2.04 Scts after deducting income retained. Balance sheet remained strong at a gearing of c20.2% with interest cover of 10x.

Occupancy driven recovery a good sign. While performance still lagged compared to a year ago, we are encouraged from the sequential improvement in RevPAR. Note that average RevPAR of S$154 (-26 % yoy, +15% qoq) was driven largely by higher average occupancies, which in our view should be more sustainable in the longer run and a signal of a return of business confidence and travel. In addition, we believe that the Formula One race in Sept’09 also helped bumped up performance slightly.

Positive vibes should have been priced in. While we continue to like CDL HT for its exposure to the local tourism scene, at a P/NAV of 1.1x and FY09F-10F DPU yields of 5.1- 6.3%, we current stock price should have already priced in a fair amount of optimism and expectations faced by the local tourism industry. As such, we downgrade CDL HT to a HOLD given limited upside from our target price. TP S$1.57
is maintained. Further re-rating catalysts will hinge on (i) higher than projected tourism performance, (ii) acquisitions