CDL HT reported their FY08 results in line with expectations. DPU of 10.6cts for the year meant a DPU yield of 16% for unitholders. However, the trust is reducing their payout ratio to 90% from 2H08 onwards, in light of an increasing challenging operating environment. We switch our methodology to DDM to take into account the reduced payout. TP is adjusted to S$0.70. Maintain HOLD. CDL HT is trading at c..11% FY09-10F DPU yields.

Results in line. Gross revenues and NPI, which came in at S$115m and 103m (+26% and +20%) respectively, were in line with our estimates. This was on the back of a 20% yoy growth in RevPAR to S$208, which mainly reflected the stronger first 3Qtrs results offsetting a slightly weak 4Q. Distributable income of S$91.9m was also in line. DPU of 10.6 Scts for the year was slightly below our estimates, due to a change in payout ratio to 90% from 2H08 onwards. NAV was adjusted downwards to S$1.42 due to a 9.1% write-down in asset values. Gearing remains low at 18%. The trust is looking to finalize the refinancing of ST loans in the near future.

Moving to a lower payout ratio. Mgmt guided that the decision to reduce payout was driven by financial prudence and use for working capital and potential capex in the light of a deteriorating local tourism outlook. Though we agree that this will enable better financial leverage for the trust moving forward, it comes at a high price as the trust will be liable for tax on the retained amount.

Switching to DDM valuation. We switch our valuation methodology to DDM to take into account the impact of a reduced payout moving forward. Our target price, as a result, is reduced to S$0.70 (11% cost of equity, 1% terminal growth). Maintain HOLD.