We see value in CDL HT emerging given that (i) it currently trades at 0.35x P/BV, which implies a valuation per room of S$239k, below our estimated replacement cost, and (ii) offers a FY09-10F DPU yield of 12%, of which 40% is fixed. In addition, we view that refinancing issues should not be a worry given the trust’s superior financial metrics. Positive catalyst in the near term will hinge on the re-financing of its ST debt. As such, we upgrade CDL HT to BUY, TP $0.65 based on DDM.

Trading below replacement cost. CDL HT is currently trading at 0.3x P/BV or an implied valuation per room of S$239k, which is below our estimated replacement cost of S$347k. Current valuation for its CDL HT’s hotel portfolio is unjustified given its positioning as Singapore’s largest hotel owner with more centrally located hotels which performance will pick up when the two IRs open.

Re-financing of ST debt should be completed. CDL HT’s short term refinancing requirement of S$290m loan should not be a major concern given that (i) the trusts’ low gearing of 19%, placing the trust in a relatively safe zone in the face of possible further write-downs, (ii) high interest cover in excess of 4.0x in FY09-10F, and (iii) strong sponsorship (M&C Holdings) backing.

Weak earnings should have already been priced in. Latest statistics from STB in Feb’09 showed hotel RevPAR declining 30% yoy but was higher m-o-m driven by higher occupancies. For CDL HT, we are revising RevPAR to decline by 25% in FY09-10 (15% previously) on the back of lower occupancy assumptions to 70%, resulting in a FY09-10 DPU estimate of 6.3-6.2 cts.

DPU yield of 12%. We believe that current price is an attractive entry point for investors to leverage on the positive medium term outlook for Singapore’s tourism sector. Investors of CDL HT will be rewarded with an attractive 12% DPU yield for their patience.