050612 cdl h trust - daiwa

Important disclosures, including any required research certifications, are provide d on the last two pages of this report. Upbeat, but aware of current risks David Lum, CFA (65) 6329 2102 [email protected] • Still trying to improve yields • In no rush for acquisitions • Reaffirm Outperform What's new We had a meeting with the management team of CDL Hospitality Trusts (CDLHT) on 5 June 2012. What's the impact 1Q12 visitor arrivals have exceeded expectations . Singapore has seen record highs in visitor arrivals each month since December 2009, ever since the opening of the two integrated resorts. Even during the current Euro-zone uncertainty, visitor arrivals for 1Q12 grew 14.6% YoY. The revenue-per-available-room (RevPAR) at CDLHT’s Singapore hotels hit record highs for the past three quarters (3Q11, 4Q11, and 1Q12). Management sees no reason why 2Q12 RevPAR could not be another record high, though it is monitoring closely the negative developments globally. Just as in 3Q11, management currently sees no visible deterioration from the Europe market. The government continues to promote tourism aggressively . In addition to the S$2bn committed in 2005, the government will invest S$905m over the next five years, with one-third set aside to develop the meetings, incentives, conventions and exhibitions (MICE) sector. In 2011, the number of MICE events in Singapore increased by 46% to 2,130 (from 1,460). But all is not positive. Aside from the global-market uncertainty, management acknowledged that it has struggled in the market with yield management (pushing room rates up). Although only 1,530 new hotel rooms are scheduled to open in 2012, or 3.1% of overall stock at the end of 2011, the new hotels ha ve been offering promotional rates when they open. Consequently, customers tend to 'shop around' for better deals from these new hotels. This factor was cited in its 12-month outlook commentary in its 1Q12 results announcement. Still looking for acquisitions. Management is still looking for acquisitions, but is in no rush. It has balked on paying more than S$1m per room for Singapore hotels even though the deals would have been DPU accretive. Gearing (debt to assets) is only 25.6%, as at 31 March. We believe the most attractive asset from its sponsor would be the 300- room Robertson Quay site, but that property will only be opened in 2014. Management is also optimistic on the Japan hotel sector, for its play on tourism from China, but has not found any suitable properties yet. Acquisition opportunities could occur unpredictably, such as when it came across its Australian portfolio. Management is also concerned with a possible decline in the resources sector, but so far in 2012, the RevPAR growth from its Australian hotels has exceeded that of the Singapore hotels, which improved 9.3% YoY for 1Q12. What we recommend We reiterate o ur Outp erform (2) rating for CDLHT, and maintain our target price of S$2.10, pegged at parity with our finite-life Gordon Growth Model valuation. A risk to our call would be a sudden collapse in monthly visitor arrivals or RevPAR. How we differ Our 2012-14 DPU forecasts are 5.9- 14.5% higher than those of the Bloomberg consensus, and we see some scope for positive DPU- forecast upgrades by the market if the tourism momentum continues. Forecast revisions (%) Year to 31 Dec 12E 13E 14E Revenue change 0.0 0.0 0.0 Net-property-income change 0.0 0.0 0.0 DPU change 0.0 0.0 0.0 Source: Daiwa forecasts Share price performance 70 80 90 100 110 1.2 1.5 1.8 2.1 2.4 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 CDL Hospitali ty Trusts (LHS) Relative to FSSTI (RHS) (S$) (%) 12-month range 1.36-2.12 Market cap (US$bn) 1.35 Average daily turnover (US$m) 1.96 Shares outstanding (m) 968 Major shareholder Millennium & Copthorne (32.5%) Financial summary (S$) Year to 31 Dec 12E 13E 14E Revenue (m) 161 175 185 Net property income (m) 151 164 173 Distribution (m) 118 133 141 Core EPU 0.156 0.173 0.204 EPU change (%) (14.7) 10.4 18.4 Daiwa vs Cons. DPU (%) 5.9 14.5 14.1 PER (x) 11.5 10.4 8.8 DPU yield (%) 6.8 7.6 8.0 DPU 0.122 0.136 0.144 P/NAV (x) 1.1 1.1 1.0 ROE (%) 9.6 10.3 11.8 Source: Bloomb erg, Daiwa forecasts Construction & real estate / Singapore 5 June 2012 CDL Hospitality Trusts CDREIT SP Target price: S$2.10 → S$2.10 Up/downside: +17.0% Share price (5 Jun): S$1.80

050612 cdl h trust - daiwa

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