OUE Hospitality Trust - CIMB Research 2015-12-09: Worth a revisit

OUE HOSPITALITY TRUST SK7.SI

OUE Hospitality Trust - Worth a revisit

CPCA enhanced the diversification of OUE-HT as 3Q15 distributable income rose 6% yoy.
MOS and MG are quality assets which could offer resilience for RevPARs and positive rental revisions.
We have factored in the dilutive impact of CPEX.
Maintain Add on OUE-HT being the highest yielding hospitality REIT.

OUE-HT’s 3Q15 distributable income rose 6% yoy thanks to contribution from Crowne Plaza@Changi Airport (CPCA). Gross revenue was also 22% yoy higher due to a better operating performance from Mandarin Orchard Singapore (MOS) and an additional S$4m of master lease income from the newly-acquired CPCA. MOS recorded a higher RevPAR of $243 in 3Q15 vs. S$241 in 3Q14. Meanwhile, CPCA achieved a RevPAR of S$250. The trust’s retail segment largely remained the same.

MOS and Mandarin Gallery (MG) are strategically located at the heart of Orchard Road, Singapore’s premier shopping belt. We believe that the location will give MOS’ RevPARs more resilience vs. peers.
Meanwhile, notwithstanding the challenging retail scene in Singapore as well as more expected fit outs (as a result of tenancy changes), we expect MG to achieve positive rental reversion for the remaining 21% of leases (by gross rent) due later in the year.
MG achieved rental reversion of +6% for 3Q15.

OUE-HT is set to acquire the Crowne Plaza Extension (CPEX) for S$205m by Jun 16, when the asset is expected to be completed. Given that OUE-HT’s gearing level would be able to fund 75% of the acquisition via debt (before hitting gearing level of 45%), we have factored in a S$110m dilution.
In addition, AEI for MOS which commenced in end- 2013 will continue into 2016. The remaining 270 out of 430 guest rooms would be renovated in phases. The refurbishment is funded by the sponsor, OUE Ltd.

We believe that near-term concerns from the potential dilution of the funding of the upcoming CPEX acquisition have been over-played.
Currently offering FY15 dividend yield of 8.5% and FY16 yield of 9%, OUE-HT is one of the highest yielding hospitality REITs in Singapore.
We maintain our Add call with an unchanged DDM-based target price of S$0.98.

LOCK Mun Yee CIMB Securities | http://research.itradecimb.com/ 2015-12-09

CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 0.98 Same 0.98