Sale-and-leaseback of Angsana Velavaru. CDLHT announced that it has entered into a conditional sale and purchase agreement with Banyan Tree Holdings (BTH) on 4 Jan for the acquisition of Angsana Velavaru (79 beach villas, 34 water villas) at a purchase price of USD71m (USD628k per key), at a pro forma annualised NPI yield of 9.6% for the nine months ended 30 September. Including the USD0.71m acquisition fee and USD0.68m professional fees, total cost of acquisition is USD72.4m. This will be fully funded through debt financing, which will increase CDLHT’s gearing from 25.5% to 28.6%. Upon completion, CDLHT will leaseback the property to BTH for 10 years.

Lease agreement. Under the lease, CDLHT will receive rent payments equivalent to GOP less management fees. BTH is entitled to a tiered management fee, representing a share of the GOP, only if the GOP for the year exceeds USD4.5m. BTH will also pay a top-up amount to make up for any shortfall in rent below USD6m (the “Minimum Rent”). On the other hand, CDLHT has to set aside an amount equivalent to 3% of gross revenue as FF&E reserve every year and has to fund any capital expenditure required.

Rationale for acquisition. CDLHT’s first resort acquisition positions it as a beneficiary of the growing visitor arrival trends in Maldives, particularly from China. This also marks the beginning of a new lessee relationship with BTH (apart from existing ones with M&C, Accor and Rendezvous Group). CDLHT also believes that the asset presents asset enhancement opportunities. The Ministry of Tourism, Arts and Culture of the Republic of Maldives previously increased the allowable built-up area for tourist facilities as a percentage of the total land area from 20% to 30% in Apr 2012. Moreover, this acquisition also has the additional benefit of reducing CDLHT’s reliance on any single property such that the maximum contribution in gross rental revenue from Orchard Hotel will fall from 18.7% to 17.5%.

Our estimates. We expect the acquisition to complete by Feb 2013, with NPI yield-on-cost of ~8% (Incremental NPI of USD5.7m per annum) and GOP margin of 50%. According to CDLHT, RevPar (YTD Sep 2012) is around USD279 and occupancy ~70%. Room revenue makes up ~73% of total revenue while F&B constitutes the rest. At a cost of debt (USD) of slightly north of 2% (100% debt-funded), we think this acquisition should be yield-accretive for CDLHT.

Reiterate HOLD. We are mildly positive on this acquisition. Nonetheless, with more hospitality trusts onboard (At FY13P/B of 1.2x, scarcity premium likely to compress) and more hotel rooms coming onstream, we would advise investors to stay cautious. The stock has run up 22% in FY12 has limited upside ahead in our view. Reiterate HOLD with TP of SGD1.98.

Source: Maybank Kim Eng Research - 07 Jan 2013