Strong recovery in visitor volumes expected with 12m visits for Resorts World at Sentosa (RWS) alone. As the economy recovers from the current downturn, we expect tourist arrivals to rebound by 20% yoy in 2010 after a 12% yoy decline in 2009 (2008: 10m), augmented by the opening of the two integrated resorts (IRs). Genting Singapore alone expects 12m visitors per year comprising 40% locals and 60% tourists. The locals include visitors from the Malaysian cities within a 3-hour driving radius to RWS. Apart from the casinos, both IRs boast a variety of tourist attractions such as the Universal Studios at RWS and the ArtScience Museum at Marina Bay Sands. The increased number of attractions will also enable tour operators to enhance their offerings with longer staying packages to a total population of 2b within a 5-hour flight radius.

Occupancy could return to above-80% levels from 2010 onwards. There is a huge supply of around 11,807 new hotel rooms in 2009 through 2012 adding to the existing stock of 31,364 rooms. This implies a 4-year CAGR of 9% in the Available Room Nights. However, our analysis suggests that occupancy rates could still return to above-80% levels, factoring in a mere 3% 4-year CAGR in tourist arrivals from 2008 to 2012 (vs the historical 10-year CAGR of 5%) at an average length of stay (ALOS) of 3.7 days. Our forecast of a 20% rebound in visitor arrivals in 2010 is expected to result in above-80% occupancy levels from 2010.

RevPAR expected to stand pat. Notwithstanding the recovery in occupancy levels back to above 80%, we expect RevPAR to remain largely unchanged as a result of the offsetting effects of lower room rates. Zeroing in on 2010, we expect promotional discounts at the IR hotels and knock-on effects on other hotels to keep room rates at 2009 levels of S$140-145. In the longer term, we expect room rates to stabilise below the historical three-year average of S$170 as we expect IR operators to offer more appealing rates in order to attract gaming revenue, and for the effects to trickle down to other hotels as well.

Well positioned to receive increased visitor arrivals. A recent newspaper report noted that Novotel Clarke Quay, owned by CDREIT, has already filled 80% of its rooms for the 2009 Formula One event at lower rates. Novotel Clarke Quay is the only hotel bucking the trend even though it is not a trackside hotel, according to the report, as other hotels are seeing lacklustre response even with early-bird offers. We expect to see a similar situation with the opening of the IRs in 2009 and 2010. We believe the knock-on effects from the opening of the casinos will be great, and CDREIT is well positioned to benefit from this as all of its properties in Singapore are strategically located either in or near the Central Business District (close proximity to Marina Bay Sands) and Orchard Road.

We remain positive on CDREIT for its fixed rent component and its potential to reap benefits from the opening of the IRs. Our target price of S$1.24 is based on a two-stage dividend discount model (required rate of return: 7.7%; terminal growth: 2.5%).

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