CDL Hospitality Trust – Poised to grow on three fronts (POEMS)

Hold (Maintained)

Closing Price S$2.10

Target Price S$2.10 (0.0%)

• 2Q11 revenue $34.6m, NPI $35.6m, distributable income $28.5m

• 2Q11 DPU of 2.96 cents

• Increase revenue by 1.7-1.8% for the period between 2012 and 2015

• Raise target price to S$2.10 but maintain Hold

1H11 DPU was in line with our estimates

Better hospitality performance and contribution from Studio M Hotel boosted gross revenue by 12.6% y-y to $34.6m. NPI was $35.6m, up 24.0% from a year before and exceeded the gross revenue for the reporting quarter. This was attributed to the one-off property tax refund of about $3.3 million and improved top-line. Distributable income after deducting the income retained for working capital was $28.5m (+31.3% y-y) and translated to a DPU of 2.96 cents. Adding together 1Q11 DPU of 2.38 cents, the aggregate dividend payout for 1H11 was 5.34 cents forming 49% of our full year DPU estimate. Average occupancy rate (AOR) for Singapore Hotel was 88.1% in 2Q11, a dip of 0.4%-pt compared with the preceding year. Nevertheless, average daily rate (ADR) edged up 5.5% y-y to $232 and made up for the dip in AOR, and thus lifted the revenue per available room (RevPAR) to $205. AOR for Orchard Hotel Shopping Arcade stayed above 96.5% level with an average monthly rental rate of $7.05 per sq ft. CDL HT’s Australia Hotels continued to perform well supported by the commodity-rich sector and static supply of hotel rooms.

Fueled by three growth engines

1. Organic growth: Singapore tends to receive more visitors in second half of the year due to seasonal factors. Increased demand in hotel rooms may exert upward pressure to ADR. ADR, a laggard, will also play catch up with AOR. Therefore, ADR for Singapore hotels is anticipated to gain traction over the next few quarters. 2. Enhancement growth: Phased refurbishments at Orchard Hotel and Novotel Clarke Quay will give rise to higher ADR when remaining rooms are slated for completion. Enhanced product offerings will raise their standards to remain competitive with other hoteliers along Orchard shopping belt and those in the vicinity of River Valley precinct. 3. Acquisition growth: Ample debt headroom also leaves CDL HT well-positioned for further acquisition trail in the Asian hospitality sector in 2011.

Valuation

Hospitality market performance is highly susceptible to the health of tourism market and external economies, and a change in tide may overshadow the optimism on tourism growth story. Despite 2Q11 result was largely on track to meet our full year estimates, we are mindful to raise our revenue forecast between 2012 and 2015 by 1.7-1.8% as our earlier projection was slightly conservative. Coupled with the property tax refund, we revised our target price to $2.10 but maintain Hold as the valuation is not attractive relative to other REITs which are more resilient and command a lower NAV premium. We opine that the CDL HT’s current price is fairly value.