Negatives priced in

• Meeting expectations. 3Q08 results were in line with consensus and our estimates. DPU of 2.93cts grew 24.2% yoy to form 26% of our forecast of 11.2cts for FY08. Gross revenue of S$29.1m was up 21.3% yoy on double-digit revenue per available room (REVPAR) growth in its Singapore properties. YTD DPU forms 78.5% of our full-year estimate, in line.

• Average room rates up but occupancy slow. Room rate increases for Singapore hotels remained strong at 27.6% on a yoy basis, boosted by F1 in September. However occupancy levels slowed from the high base in 3Q07, dropping 4.4- percentage points to 85.5%

• Debt facilities due in Jul 09. All of CDLHT’s debt of about S$297m would be due for refinancing by Jul 09. All-in cost of funding as at Sep 08 was 3.1%. With CDLHT’s low asset leverage at 19.3%, high interest cover of 12.2 times, BBBrating and strong sponsor M&C, we believe that refinancing would not be difficult for the company.

• Changes to assumptions. In line with our house view that the US financial crisis could result in a marked slowdown in Asia, we cut our REVPAR forecasts (a function of occupancy and average daily rates) to reflect between 10-20% decline in FY09-10. Separately, we remove our earlier acquisition assumptions of S$300m per annum over FY09-10 as we do not expect any acquisitions in the current credit climate. We also increase our cost of debt assumptions by another 50bps from FY09.

• Maintain Neutral at lower target price of S$0.77 (from S$1.78). Following our adjustments, our FY09-10 estimates decrease by 19-29%. We apply a higher discount rate of 10.8% (previously 8.5%) to our DDM valuation to reflect increased risks for the short-stay tenures of the hospitality industry in this climate vs. other property segments (average 3-year leases). Our earnings reductions account for 72% of the change in our target price. Our new target is S$0.77 (from S$1.78). CDLHT’s sharp price fall of 77% since Jan 08 has priced in the negatives of slowing growth. Maintain Neutral.

CDL Hospitality Trusts Q3 income up 30% to $24.4m

CDL Hospitality Trusts (CDLHT) yesterday said that its third quarter distributable income rose 29.7 per cent to $24.4 million, from $18.8 million a year ago.

Distribution per unit for the three months ended Sept 30 was 2.93 cents, 24.2 per cent higher than the 2.36 cents reported for the corresponding period last year.

Net property income for Q3 rose 20.7 per cent to $27.3 million, from $22.6 million in Q3 2007.

CDLHT is a stapled group comprising a real estate investment trust (Reit) and a business trust.

In Q3 2008, the room revenue per available room (RevPAR) for the Reit’s Singapore hotels – Orchard Hotel, Grand Copthorne Waterfront Hotel, M Hotel, Copthorne King’s Hotel and Novotel Clarke Quay – rose to $214, from $176 a year ago. The Reit also owns one hotel in New Zealand – Rendezvous Hotel Auckland.

However, the average occupancy rate fell slightly by about four percentage points to 85.5 per cent as visitor arrivals to Singapore fell. But the Reit was still able to report better earnings as room rates were higher this year.

In particular, the Reit benefited from the strong performance of its hotels during the Formula One Grand Prix, when room rates were about twice the average rates.

‘We are pleased to have been able to report robust growth in this quarter on the base of organic growth across CDLHT’s portfolio of hotels despite turmoil in the global financial markets,’ said Vincent Yeo, chief executive of the Reit’s manager.

CDLHT’s debt-to-asset ratio rose to 19.3 per cent over Q3 of this year as total debt rose to $297 million. The trust has some $220 million of debt due for refinancing in July 2009. Refinancing has yet to be locked in, but the trust is in discussions with banks and chances of securing refinancing are good, said Mr Yeo.

Looking ahead over the short term, the events of the last few months will have some impact on CDLHT’s business, Mr Yeo said.

But the trust is still upbeat about the prospects of Singapore tourism in the future, citing high-profile events such as the Asia-Pacific Economic Cooperation (Apec) conferences in 2009 and the Youth Olympics in 2010 as well as the annual F1 event.

The trust is likely to see mainly organic growth in the short term, but 2009 could provide more opportunities for acquisitions, especially if distressed assets turn up on the market, Mr Yeo said.

CDLHT gained 0.5 cent to close at 59 cents yesterday. The stock has lost 74.9 per cent so far this year.

SINGAPORE – Singapore said on Thursday it will likely miss its targets for travel arrivals and tourism revenues this year after the number of foreign visitors fell for the fourth straight month in September.