OUE Hospitality Trust - RHB Invest 2017-12-19: All Signs Point To A Better 2018

OUE HOSPITALITY TRUST SK7.SI

OUE Hospitality Trust - All Signs Point To A Better 2018

OUE Hospitality Trust (OUEHT)’s hotels are expected to see a stronger performance in 2018 driven by demand pick-up and tapering of supply.
CPCA, one of its key asset, is also a direct beneficiary of the opening of the new terminal with it being one of the few high-end hotels near the vicinity.
Overall, we expect RevPAR to improve by 3-7% in 2018 after falling over last few years. Its retail segment is expected to see a decent performance despite the challenging market.

OUEHT’s key asset Mandarin Orchard Singapore (MOS) is showing an improved performance metrics with RevPAR increasing 8% YoY in 3Q17. The better performance was driven by both higher occupancy and better room rates. More importantly, it was driven by a broad demand improvement across all market segments (transient, corporate and wholesale).
Going forward, we expect the demand to improve and with supply tapering, this should further boost RevPARs.
Overall, we expect Hospitality RevPAR to increase by 3-7% in 2018. In tandem, the food & beverage (F&B) segment is also expected to see a better performance.

Changi Airport’s new T4 opened its doors on 31 Oct and would be able to handle 16m passengers annually bringing total capacity to 82m. One of the direct beneficiaries of new terminal would be OUEHT’s Crowne Plaza Changi Airport Hotel (CPCA) with it being the only hotel located on the premises.
CPCA has a total of 563 rooms (including extension) with occupancies of ~80% in 3Q17. With the opening of the new terminal, we expect airlines to increase frequencies and add new destinations, which should boost CPCA’s occupancy and RevPAR.

Mandarin Gallery’s (MG) committed occupancy remains healthy at 94.7% despite a challenging retail climate. While rent reversions have been in negative territory over the last few quarters, it was mainly due to the expiry of rents signed during the market peak in 2013-2014.
Notably, OUEHT has been moving towards a higher variable rent structure for its new leases thus the effective negative rent reversions are lower.
Looking ahead, about 5% and 19% of leases (as a percentage of gross rent) are due for renewal in FY17-18, which we expect negative rent reversions of ~5-10%. The impact of negative rent reversions is expected to be mitigated by higher occupancy in the mall.

Our DDM derived SGD0.88 TP is based on a COE of 7.2% and a 2% terminal growth.
The stock offers FY18F-19F yields of 6.6% and 6.7% respectively.
Potential upside could arise from stronger-than-expected visitor arrivals and better corporate segment demand.
Key risks are lower-than- expected pick-up in visitor arrivals and weaker corporate demand.

OUE Hospitality Trust OUEHT is one of the 2018 Top Stock Picks by RHB Invest.

Vijay Natarajan RHB Invest | http://www.rhbinvest.com.sg/ 2017-12-19

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