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OUE Hospitality Trust - CIMB Research 2016-03-09: Rights issue to fund CPEX acquisition

OUE Hospitality Trust - CIMB Research 2016-03-09: Rights issue to fund CPEX acquisition OUE HOSPITALITY TRUST SK7.SI 

OUE Hospitality Trust - Rights issue to fund CPEX acquisition 

  • 33-for-100 rights @ S$0.54, to raise proceeds of S$238.6m to fund the acquisition of S$205m-CPEX. 
  • Acquisition is not as DPU-accretive to our initial assumptions as it is 100%-equity funded. 
  • We are positive on the longer-term prospects of Crowne Plaza Changi Airport. OUEHT to further benefit from expansion plans of Changi Airport. 
  • Maintain Hold with lower DDM-based target price of S$0.67. 


Rights issue to fund CPEX acquisition 

  • OUEHT has announced an underwritten and renounceable 33-for-100 rights @ S$0.54 (29.4% disc. to closing price of S$0.765, 23.9% disc. to TERP of s$0.7092). 
  • The proceeds of S$238.6m will be used mainly to fund the acquisition of S$205m-Crowne Plaza Changi Airport Extension (CPEX) as well as pare down debt. CPEX is expected to be completed by mid-2016. 
  • We forecast OUEHT’s gearing to drop to 37.2% as at end-FY16 (end-FY15: 41.8%). The last date of cum-rights is 10 Mar 2016. 

High quality and strategically located asset 

  • Though the acquisition is not as DPU-accretive to our initial assumptions, we are positive on the longer-term prospects of Crowne Plaza Changi Airport (CPCA). 
  • In total, CPCA and CPEX are purchased at an annualized yield of 4.6% or S$495m. 
  • Connected by a link-way on the second floor of both buildings, CPEX will add another 243 rooms to the 320-room CPCA – the only global brand name hotel located within the Changi Airport area. The hotel is also close to the Changi Business Park and Singapore Expo. 

Further benefit from expansion plans of Changi Airport 

  • OUEHT is poised to benefit from the expansion plans of Changi Airport, which has commenced development for Project Jewel and Terminal 4, as well as having announced the planning of Terminal 5. 
  • Additionally, CPCA has outperformed the market in 2015 by maintaining its RevPAR. Overall Singapore hotels’ RevPAR fell by 5.3% yoy in 2015. 
  • Lastly, the vendor will provide income support of up to S$7.5m, should the target rents fall below S$29m-30m within the first three years of the acquisition of CPEX. 

Hold maintained 

  • Factoring in the rights issue, we lower our DDM-based target price to S$0.67. 
  • Maintain Hold on the stock as we see downside risks to Mandarin Orchard Singapore’s RevPar.




YEO Zhi Bin CIMB Securities | LOCK Mun Yee CIMB Securities | http://research.itradecimb.com/ 2016-03-09
CIMB Securities SGX Stock Analyst Report HOLD Maintain HOLD 0.67 Down 0.77


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