New bilateral loan facility to be closed soon. CDLHT has S$274m of debt due this July, from lenders, DBS and RBS. Negotiations for refinancing with a local lender are underway and could be completed by early May. The new facility will be a bilateral loan in excess of S$300m, with an estimated all-in cost of debt of 4.5-5%. Management estimates that asset leverage will climb from 18.3% to 20% after the refinancing. There is no urgency to switch to the new facility immediately since the existing facility offers an attractive margin.

Support from parent in refinancing. A question was raised on whether management would seek the support of CDLHT’s parent to lower its cost of debt in the form of direct loans or corporate guarantees. Management replied that seeking approval for relatedparty transactions is a lengthy and tedious process, and it is not taking this route for current refinancing. However, having the backing of a strong sponsor and the lowest gearing among S-REITs (of 18.3%) have opened more doors in the form of more lenders willing talk to CDLHT.

Maintaining REVPAR. Management intends to maintain revenue per available room (REVPAR), a function of occupancy and average daily rates, and control expenses. On the revenue front, maintaining REVPAR is more of a concern to management than slashing rates to hold up occupancy. With many corporates trading down from 5 and 6-star hotels to 4-star hotels, CDLHT has begun to receive more enquiries, particularly for its M Hotel which serves mainly business travellers. Revenue visibility remains low as forward bookings become shorter. Nonetheless, management expects an improved 2H09 from events such as F1. Additionally, a sharp rise in hotel demand is expected in 2H09 as consultants and professionals working for the launch of the Marina Bay Sands IR will be coming in then.

Cost-control. Cost-cutting measures including labour deployment and renegotiation of contracts with existing suppliers have been successful thus far. Additionally, as the largest hotel landlord in Singapore, CDLHT has enjoyed much economies of scale. Management is confident of maintaining gross operating margins at 50%.

Acquisitions to stay opportunistic. Any acquisitions are likely to remain highly opportunistic. Key considerations for potential acquisitions include: 1) whether the deal is yield-accretive; 2) how the absolute purchase price benchmarks against replacement costs; 3) lease structures; and 4) tax implications, among others.

Maintain Outperform and target price of S$0.68, still based on DDM valuation. We came away from the road show with more clarity on operations and confidence that management remains very much in control. We hold the view that CDLHT’s welllocated 4-star hotels are in a good position to outperform the market in terms of occupancy, as they had consistently done in the last two years.

At 0.4x P/BV and with downside yield protection of up to 6.2% that comes just from the fixed rent component alone, we believe CDLHT remains very much under-valued among the S-REITs. We maintain our Outperform rating and target price of S$0.68 (discount 10.8%), based on DDM valuation.