OUE Hospitality Trust - RHB Invest 2016-03-16: Get Exposed To Upscale Hoteliers

OUE HOSPITALITY TRUST SK7.SI

OUE Hospitality Trust - Get Exposed To Upscale Hoteliers

We think investors could outperform the market with OUEHT.
We like its exposure to the upscale hotel sector, as the upscale and luxury segments should outperform.
We also note that most of the new supply expected for this year may comprise mainly economy and mid-tier hotels.

Lastly, the REIT’s Orchard Mall is expected to book in positive rental reversion, as there is likely to be no more retail supply on Orchard Road till 2018.
We upgrade the stock to BUY, with a SGD0.86 TP (from SGD0.67, 23% upside).

The upscale and luxury segments were the least impacted during the 2009 crisis.
Despite a challenging period last year, OUEHT’s hotel portfolio outperformed the overall hotel industry in terms of revenue per available room (RevPAR).
We expect tourists to be more price-sensitive to the room rates of its hotels vs that of other lower-tier hotels – since the upscale segment has lofty rates.
We like the REIT as we expect its upscale hotels such as Mandarin Orchard Singapore and Crowne Plaza Changi Airport Hotel to outperform the overall hospitality sector.

We think 2016 may be a better year for OUEHT, as we expect the supply growth of upscale or luxury hotel rooms to moderate this year (1,270 vs Horwath HTL’s 1,550).
In addition, less than a third of total hotel room supply constitutes the upscale/luxury segment, while a huge chunk (68%) of the total supply pipeline are allocated to both the economy and mid-tier segments.
In terms of demand, we think that both the recovery in tourist arrivals and a 2016 filled with more events should be positive catalysts for the stock.

We expect rental reversion to remain positive, as Mandarin Gallery is poised to benefit from the crunch in the new supply of hotels along Orchard Road.
In addition, we expect international retailers to continue expanding in Singapore, given their strong financial positions.
An expanding retail scene along Orchard Road would be in line with the positive interest of international retailers, as they see Singapore as a testing ground for the ASEAN retail market.

We are of view that OUEHT is attractively priced now, as its current prices indicate that it is trading at a substantial 16% discount to its current book value.
In addition, we think that the REIT would be able to outperform the market and our TP implies an attractive total return of 22.4%.
We urge investors to add OUEHT to their portfolios, premised on the strength of its attractive valuations and the potential catalysts that may boost the hospitality sector this year.
Key downside risk is the increase in tourist arrivals not translating into higher room rates for hoteliers.

Ivan Looi RHB Invest | http://www.rhbinvest.com.sg/ 2016-03-16

RHB Invest SGX Stock Analyst Report BUY UPGRADE SELL 0.86 Up 0.67