OUE Hospitality Trust - OCBC Investment 2016-03-10: Lower DPU forecasts by 15% to 17%; Maintain HOLD

OUE Hospitality Trust - OCBC Investment 2016-03-10: Lower DPU forecasts by 15% to 17%; Maintain HOLD OUE HOSPITALITY TRUST SK7.SI 

OUE Hospitality Trust: Lower DPU forecasts by 15% to 17%; Maintain HOLD 

  • Rights issue to fund CPEX acquisition 
  • Extension of a prime asset at Changi 
  • Acquisition is DPU-dilutive 

Rights issue to fund acquisition of Crowne Plaza Changi Airport Extension (CPEX) 

  • On Monday, OUEHT announced an underwritten and renounceable rights issue to raise gross proceeds of ~S$238.6m at an issue price of S$0.540; this is a 28% discount to yesterday’s closing price of S$0.750, and 23% discount to the theoretical ex-rights price (TERP) of ~S$0.698. 
  • The rights ratio is 33 Rights Stapled Securities for each 100 existing shares. 86% of the proceeds will be used to fund the acquisition of CPEX; most of the remainder will be used for working capital and other capex purposes. 

Underwritten and renounceable 

  • The Sponsor and other stapled security holders have committed to subscribing in full for their provisional allotment of the Rights Stapled Securities, which represents ~44% of the rights issue. The remaining rights are underwritten by BNP Paribas, DBS Bank, and Credit Suisse (Singapore). 
  • Non-subscribers may trade their rights entitlements from 18 Mar to 29 Mar. 

Acquisition of a prime asset extension, but equity financing makes it DPU-dilutive 

  • CPEX is a 243-room extension of the 320-room Crowne Plaza Changi Airport (CPCA). It is currently due for completion mid-2016. CPEX will be directly connected to Changi Airport terminals, which served a record 55.4m passengers in 2015. 
  • Nonetheless, we estimate that the acquisition of CPEX is DPU-dilutive with its reliance on a deeply discounted rights issue. In our previous forecast, we assumed 50% debt financing for the CPEX acquisition. 
  • We do note that the reliance on equity financing for the CPEX acquisition will reduce OUEHT’s gearing from 42.0% to 37.8%; leaving the manager with greater financial flexibility going forward. 

Adjust DPU forecasts downward by 15% to 17% 

  • After accounting for dilution from the rights issue and making downward adjustments to our occupancy assumptions of Crowne Plaza Changi Hotel (combined), we reduce our FY16-18 DPU forecast by 15% to 17%. 
  • FY16 DPU is expected to come in at ~5.8 cents. 
  • Our fair value estimate drops from S$0.80 from S$0.70. Maintain HOLD.

Deborah Ong OCBC Securities | http://www.ocbcresearch.com/ 2016-03-10
OCBC Securities Analyst Report HOLD Maintain HOLD 0.70 Down 0.80