CDLHT Q4 distributable income up 83.4%

Trust hopes to add Copthorne Orchid to portfolio this year

CDL Hospitality Trusts (CDLHT), the biggest owner of hotel rooms in Singapore, yesterday posted strong Q4 and full-year results.

Distributable income for the quarter ended Dec 31, rose 83.4 per cent from a year before to $22.7 million. CDLHT, a stapled entity, is hoping to acquire this year Copthorne Orchid in the Bukit Timah area from parent Millennium & Copthorne Hotels, the London-listed hotel arm of Singapore property giant City Developments.

CDLHT’s plan is to build up its assets over three to five years from about $1.6 billion as at the end of last year to around $3 billion, with increasingly more overseas acquisitions.

‘My favourite acquisition markets at the moment are Singapore, Vietnam and India. These are high-octane growth markets,’ said Vincent Yeo, CEO of M&C Reit Management.

The company is the manager of CDL Hospitality Real Estate Investment Trust, which is stapled to CDL Hospitality Business Trust to form CDLHT.

With CDLHT’s current gearing ratio (debts-to-assets) only at about 19 per cent, it has debt headroom of $792 million to fund acquisitions before it reaches its self-imposed gearing threshold of 45 per cent.

‘Given our strong balance sheet position, we’re well placed to seize acquisition opportunities as they present themselves,’ Mr Yeo said.

CDLHT has a right of first refusal to buy parent M&C’s Singapore hotels. M&C owns the 445-unit Copthorne Orchid at Dunearn Road, as well as a 370-room new hotel being built in the Mohamed Sultan Road vicinity slated for opening in the first quarter of next year.

Mr Yeo indicated that CDLHT would like to acquire Copthorne Orchid this year ‘if it’s possible’. He reckons the property is worth over $200 million. ‘The ball is in M&C’s court … We’re waiting to hear from them,’ he added.

The trust would acquire the Mohamed Sultan hotel only after it has opened and even then, this is likely to include initial income support if necessary, he said.

Copthorne Orchid had once been earmarked for development into a condo but it now continues to operate as a hotel as there is a shortage of hotel rooms in Singapore.

When CDLHT launched its initial public offer in July 2006, it had four hotels Singapore in its portfolio – Orchard, Grand Copthorne Waterfront, Copthorne King’s and M. In June last year, it acquired Novotel Clarke Quay.

Revenue per available room for the four IPO hotels rose 33.5 per cent year-on-year to $195 in Q4 2007. That together with a full quarter’s contribution from Rendezvous Hotel Auckland (acquired in December 2006), and the contribution from Novotel Clarke Quay provided the fillip to CDLHT’s Q4 distributable income in the fourth quarter. Gross revenue jumped 65.2 per cent to $27.96 million in Q4 last year.

Unit holders will receive a total distribution per unit of 4.61 cents for the July 19-Dec 31 period, which works out to 10.14 cents on an annualised basis, reflecting a distribution yield of 4.97 per cent based on CDLHT’s $2.04 closing price yesterday, when the shares ended 8 cents lower.

For the year ended Dec 31, distributable income was $68.7 million, or 75.7 per cent above the trust’s forecast. Gross revenue of $90.65 million was also 61.1 per cent ahead of forecast.

Stellar 4QFY07. DPU increased by 56.8% yoy to 2.76 cts.

CDL Hospitality Trusts (CDREIT) posted 4QFY07 revenue of S$27.96m, 97.2% and 65.2% higher than IPO projection and 4QFY06 respectively. This is driven by both acquisition and strong RevPAR growth. CDREIT announced DPU of 2.76 cts, 56.8% yoy growth.

We continue to like the company’s exposure to the hospitality sector in Singapore and Pan-Asia. Reiterate BUY.

Revenue driven by both acquisition and RevPAR growth. The two acquisitions made after IPO, Rendezvous Auckland and Novotel Clarke Quay Hotel, contributed 27.2% of CDREIT’s total revenue. Its IPO portfolio has seen RevPAR yoy growth of 33.5% to S$195, driven by 32.7% yoy growth and 0.6ppt increase (to 88.6%) in average daily rates and occupancy rates respectively.

DPU of 2.76cts is 56.8% and 97% higher than 4QFY06 and IPO projection respectively. This translates into full year DPU of 8.98cts, or FY07 DPU yield of 4.4%.

CDREIT is the purest Singapore Hospitality REIT. With 5 well-located hotels or 2,324 hotel rooms in Singapore, CDREIT is set to benefit from the buoyant tourism sector in Singapore. As the biggest hotelier in terms of room number, it has 6.2% of total hotel room inventory in Singapore.

Buoyant tourism industry outlook in Singapore. Singapore registered 10.3m tourist arrivals, up 5.4% yoy in 2007, surpassing its target of 10.2m visitors. Total visitor days have surged 13.4% yoy to 38m. Various events as well as MICE (Meetings, Incentives, Conventions and Exhibitions) activities will attract tourists to visit Singapore in 08. We estimate that the shortage of hotel rooms will further lead to room rates hikes while maintaining occupancy rates at a high
80% level.

Well positioned for yield-accretive acquisitions in Pan-Asia. As of 4QFY07, CDREIT’s gearing ratio stood at 18.7%, which allows it to tap debt capacity of $792m (assuming 45% optimal debt ratio). Management indicated that they are continuously looking for possible acquisition opportunities in Pan-Asia and maintaining the acquisition target of $300m per year till 09. Singapore, India and Vietnam are CDREIT’s favourite markets, for their high growth in Hospitality sector. Given cap rates stabilizing due to the softening of the real estate market,
we believe that CDREIT can make further yield-accretive acquisitions in 08.

Maintain BUY. Our target price of S$2.66 is based on DCF model (WACC: 6.5%; terminal growth rate: 1.5%), after 1) roll over FY10 forecast; 2) edge up our forecast of RevPAR growth rate in 08 to 20%, 2ppt higher from our previous forecast; 3) increase WACC by 50bps due to higher risk premium and cost of debt assumption as a result of current volatile market. After the recent correction, CDREIT is trading at an attractive FY08 yield of 5.4%.

Largest Singapore hotel owner, direct RevPAR play

Ride on the rising tourism in Singapore

CDL Hospitality Trusts (CDREIT) is a key beneficiary of rising tourism in Singapore, with 2,324 hotel rooms or 6.2% of total hotel room inventory. Its hotel portfolio is located strategically close to the CBD and Orchard Road area, which allows it to cater to both business and leisure travellers. The supply of hotel rooms in Singapore will increase only 3% and 4% in 2007 and 2008 respectively, compared with an estimated 6% annual increase in tourist arrival. We believe the hotel occupancy in Singapore will likely remain at a high 80% level, which could further spike up room rates in the next two years.

Room for growth via acquisitions. Since its listing in Jul 06, CDREIT has made two acquisitions valued at S$344m in total, increasing asset under management (AUM) by 35% to S$1.4b. With a low gearing (3Q07: 23%), the trust currently has a debt capacity of S$550m for asset acquisitions, assuming a 45% optimal gearing ratio. Given CDREIT’s acquisition track record and strong sponsor (Millennium & Copthorne Hotel plc), we are forecasting S$300m asset acquisition per year with an initial yield of 5.5% in FY08 and FY09.

Maintain BUY with target price raised to S$2.77, based on DCF (WACC: 6.1%; terminal growth rate: 1.5%). We expect DPU to grow at a CAGR of 16.7% from FY07 to FY09, underpinned by both acquisitions and organic growth. Acquisition growth contributes S$0.66/share or 24% of our fair value estimate. Following its recent share price correction, CDREIT now is trading at FY08 DPU yield of 4.8%. Yield accretive-acquisitions and RevPAR growth will be the key positive share price catalysts.

Key risks include an economic downturn, higher interest rates and slower-than expected
asset growth.