BUY S$2.10
Price Target : S$ 2.30
At a Glance
• Payout ratio of 90% for 1H11
• Renovation of rooms in Orchard Hotel, Novotel Clarke Quay to underpin earnings growth
• BUY, S$2.30 TP maintained
Comment on Results
Seasonally strong 2Q11 results. CDL Hospitality Trust’s (CDL HT) 2Q11 gross revenues grew by 13% to S$34.6m. Organic growth remains strong with its Singapore portfolio posting RevPAR growth of 4.8% y-o-y (5.1% q-o-q) to S$205/night, backed by high occupancy level of c88% and partial contribution from the newly acquired Studio M hotel (acquired in May’11). Net property income grew by a higher 24% yoy to S$35.6m largely due to a one-off tax rebate of S$3.3m. As such, distributable income grew 31% to S$31.7m (DPU of 5.94 Scts before income retained) largely due to interest savings from its loan refinancing. For 1H11, the trust will be distributing 5.34 Scts, which implies a payout ratio of 90%.
Moving into higher gear in 3Q11. We note that Orchard Hotel (OCH) had c.4,417 room nights and Novotel Clarke Quay Hotel (NCQ) had c.1,133 room nights taken out of total sellable room inventory for 2 weeks, which limited optimal portfolio performance. However, we remain optimistic that when renovations are completed, these rooms, estimated to command c10%-15% higher rates on average, should enable higher earnings growth for the Trust towards the end of the year
Recommendation
BUY, S$2.30 TP maintained. Management’s stance towards optimizing portfolio yields from the execution of its refurbishment plans should sharpen its competitive edge against peers and translate to longer-term earnings sustainability, in our view. CDL HT currently offers a yield of 5.7-6.3%.
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