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OUE Hospitality Trust - DBS Research 2016-05-09: Well located assets

OUE Hospitality Trust - DBS Research 2016-05-09: Well located assets OUE HOSPITALITY TRUST SK7.SI 

OUE Hospitality Trust - Well located assets 

  • 1Q16 DPU of 1.1 Scts (-26%) y-o-y was below expectations. 
  • Drag from recent rights issue and weaker contribution from Mandarin Gallery. 
  • Hotel portfolio resilient with 1Q16 RevPAR up 1% y-o-y. 


Well located hotels. 

  • We reiterate our BUY call with a revised TP of S$0.75. 
  • We believe OUEHT is one of the best-positioned hospitality REITs to ride out the near term headwinds in the Singapore hospitality market as demonstrated by the 1% y-o-y increase in RevPAR in 1Q16. This is due to the superior location of its properties. 
  • Mandarin Orchard is located in the heart of Orchard Road, which will not see any major new hotel supply in 2016. 
  • Meanwhile, Crown Plaza Changi Airport (CPCA) and its upcoming extension (CPEX) is the only hotel within the Changi Airport submarket and well placed to take advantage of the c.72% expansion of Changi Airport’s passenger capacity. 

Opportune time to BUY during earnings lull. 

  • With expectations of an improvement in earnings in 2H16 due to the acquisition of CPEX and opening of Michael Kors and Victoria Secret stores, we believe now is the opportune time for investors to gain exposure to a portfolio of well located hotels/malls. 
  • Its earnings are currently soft, affected by the fit out period at Mandarin Gallery, and it would benefit from the potential pick up in the Singapore hospitality market in 2017. 

Removal of overhang. 

  • OUEHT’s share price corrected over the past year due to the overhang from 
    1. potential capital raising to fund the acquisition of CPEX and 
    2. gearing that was over 40%. 
  • However, these concerns have now been addressed, following the recent rights issue which is expected to result in OUEHT’s gearing falling to c.38%. 

Valuation: 

  • After accounting for the recent rights issue which raised more equity than our earlier expectations and moderating the contribution from Mandarin Gallery, we lowered our DCF-based TP to S$0.75 from S$0.85. 

Key Risks to Our View: 

  • Competitive landscape. The key risk to our view is a weaker-than-expected outlook for the Singapore hospitality market, if our projection for a 3% recovery in tourist arrivals in FY16 does not eventuate. 
  • In addition, rents at Mandarin Gallery may fall below expectations should we see a significant deterioration in the Singapore retail scene.



Mervin Song CFA DBS Vickers | Derek Tan DBS Vickers | http://www.dbsvickers.com/ 2016-05-09
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 0.75 Down 0.91


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