Category: CDL H-Trust
CDLHTrust – UOBKH
Beneficiary Of Upcoming Integrated Resorts
Strong recovery in visitor volumes expected with 12m visitors for Resorts World at Sentosa alone. Tourist arrivals are likely to rebound 20% yoy in 2010, augmented by the opening of two integrated resorts (IRs). The higher number of attractions will enable tour operators to enhance their offerings with longer-stay packages to a total population of 2b within a 5-hour flight radius. Genting Singapore alone expects 12m visitors p.a., comprising 40% locals and 60% tourists.
Occupancy could return to above-80% levels from 2010. Though there would be a huge supply of about 11,807 new hotel rooms over the next four years, occupancy rates could still return to above-80% levels based on four-year CAGR of 3% in tourist arrivals in 2008-12 (vs the historical 10-year CAGR of 5%) at an average length of stay of 3.7 days. Our forecast of a 20% rebound in visitor arrivals in 2010 is expected to lift occupancy levels beyond 80%.
Well positioned to handle increase in visitor arrivals. Novotel Clarke Quay has already filled 80% of its rooms for the 2009 Formula One event, bucking the trend even though it is not a trackside hotel. We expect to see a similar situation with the opening of the IRs in 2009 and 2010. We believe the knock-on effect from the opening of the casinos will be great, and CDL Hospitality Trusts (CDREIT) is well positioned to benefit from this as all of its properties in Singapore are strategically located either in or near the Central Business District with close proximity to Marina Bay Sands or Orchard Road.
Maintain BUY; target price: S$1.24. We remain positive on CDREIT for its potential to reap benefits from the opening of the IRs. It offers an attractive yield of 8.5%. We maintain our target price of S$1.24 based on a two-stage dividend discount model (required rate of return: 7.7%; terminal growth: 2.5%).
REITs – MS
Still the Best Way Forward
Maintain In-Line view: S-REITs remain our preferred sector exposure within the Singapore property space at least for 2009. S-REITs have not disappointed in terms of refinancing their debt. Indeed, they recapitalized their balance sheets 6 months ahead of our expectations. At least for 2009 and to a certain extent 2010, there is less risk of S-REITs cutting their dividend payout due to pressure from rising leverage. We remain comfortable that the recent fall in commitment rents will be marginally negative for 2009 earnings given that the brunt of the decline will be felt only in 2010 and 2011. A near-term positive catalyst for S-REITs is if the benchmark interest rate remains low after its recent decline.
We have a new sector top pick – A-REIT: We initiate coverage on A-REIT with an EW rating and price target of S$1.70, suggesting 11% upside from current levels. We like its 8.5-8.7% FY2010-11E dividend yield, the highest amongst its larger-cap peers, and find its recent underperformance unjustified. See our note, Steady as She Goes, published June 9, for details.
What’s new: We have revised our earnings forecasts by -1% to 39% for F2009-10E and raised our price targets by 17-112%. Given the improvement in liquidity in the equity market, investors may be willing to pay a premium above intrinsic value. Hence, for stocks that have recently recapitalized, we assign a 30% probability to our bull-case NAV and a 70% probability to our base-case NAV to calculate our price targets. We are maintaining our EW ratings on CapitaCommercial Trust, CapitaMall Trust, and CDLHT, and are downgrading Suntec REIT to Underweight given its 23% downside risk from current levels. We maintain our UW on ART.
Our investment philosophy for the S-REIT sector remains intact. Given that all the property segments – office, retail, industrial, and hospitality – are seeing oversupply for 2009-2010, the playing field is level. Moreover, all the S-REITs within our coverage are backed by strong parents and quality assets within their respective segments.
CDLHTrust – DBS
Re-financing secured
• Slightly ahead of expectations due to better than expected NPI margins.
• RevPAR of S$151 in line with projections.
• Securing new financing, no further re-financing till FY2012.
• Maintain BUY, TP S$0.74 based on DDM
Better than expected NPI margins. Gross revenues of S$22.5m (-19% yoy , 20% qoq) was in line. Hotel operations were weak on a portfolio basis; RevPAR declined to S$150 (- 27% yoy), which were in line. However, higher than projected net property income margins of 91.5%, were ahead of our projected 88%. This was largely due to successful cost containment measures, which somewhat offset the decline in room revenues. As a result, NPI of S$20.6m (-21% yoy, -5% qoq) was slightly ahead of projections. Distributed income came in at S$16.5m (-30% yoy, +11%qoq), translating to DPU of 1.97 Scts.
No further financing till 2012. CDL HT has successfully secured re-financing for ST expiring loans. The new facility amounts to S$350m comprising of a 3-year S$270m term loan and an S$80m committed revolving facility with DBS Bank. Interest rate for the new facility is lower than projections.
Maintain BUY, TP S$0.74. Valuation of 0.4x P/BV is attractive. While short term newsflow is expected to remain negative, as Singapore’s largest hotel owner, we believe CDL HT presents long term value to investors looking to leverage on the medium term prospects of the local tourism industry. Maintain Buy, TP S$0.74 based on DDM. CDL HT currently offers a prospective FY09-10F DPU yield of 12%. Risk to earnings: A sustained outbreak of Swine Flu virus impacting regional travel.