OUE Hospitality Trust - RHB Invest 2016-05-10: Performance Cushioned By Hotel Segment

OUEHT OUE HOSPITALITY TRUST SK7.SI

OUE Hospitality Trust - Performance Cushioned By Hotel Segment

Finally, there is a glimpse of hope as OUE Hospitality Trust’s (OUEHT) hospitality revenue recovered – albeit offset by the performance of its retail unit, which declined mainly from lower occupancy rates.
Post factoring a wider equity base from its rights issue in March, we cut our TP to SGD0.75 (11% upside).
We think the stock is still attractive as it would benefit from the recovery of Singapore’s tourism sector.

It is also currently trading at levels implying an attractive FY16F dividend yield of c.8%.
Maintain BUY, with a potential total return of c.19%.

Management expects the retail scene to be challenging moving forward. Thus, the REIT is repositioning its mall to better prepare for incoming headwinds.
In 1Q16, it applied a model of lower-base rent and higher turnover rent components for some expiring leases. This has resulted in its rental reversion being at -19%.
It also inked longer duration leases to enhance income stability.
Currently, its weighted average lease expiry (WALE) is at 4.5 years (1Q15: 2.3years).

Its 1Q16 results were mainly cushioned by its hotel business and offset by its retail segment.
The trust registered a c.32% decline in its 1Q16 distribution per stapled security (DPS), mainly due to the rights issued worth SGD238.6m (announced back in March). If we excluded the impact of the rights issue, DPS would have declined by 8.7% instead.
Factoring in a broader equity base, we lower our TP to SGD0.75.

We adjusted our numbers and lifted our assumption for its increased number of stapled securities to c.442m. As a result, our TP falls to SGD0.75 from SGD0.86.
At its current price level, the REIT still offers an attractive FY16F dividend yield of 7.8%.
A downside risk to our call is that a recovery in tourist numbers may not translate to an improvement in revenue per available room (RevPAR).

Ivan Looi RHB Invest | http://www.rhbinvest.com.sg/ 2016-05-10

RHB Invest SGX Stock Analyst Report BUY MAINTAIN BUY 0.75 Down 0.86