OUE Hospitality Trust - OCBC Investment 2017-08-02: Blockbuster DPU Growth Of 31.5%

OUE Hospitality Trust - OCBC Investment 2017-08-02: Blockbuster DPU Growth Of 31.5% OUE HOSPITALITY TRUST SK7.SI

OUE Hospitality Trust - Blockbuster DPU Growth Of 31.5%

  • Bright operational prospects.
  • Attractive yield of 6.6%.
  • BUY with S$0.82 FV.

Highest YoY DPU growth reported thus far.

  • OUE Hospitality Trust (OUEHT) posted a strong set of 2Q17 results last night. 
  • Revenue increased 16.0% YoY to S$31.2m, supported by stronger contributions from both Hospitality and Retail segments. Correspondingly, NPI increased 15.0% to S$26.6m. 
  • 2Q17 DPU jumped 31.5% YoY to 1.21 S cents or 25.3% of our full-year forecast, which came in at the higher end of our expectations given that second quarters are seasonally the weakest quarter for Mandarin Orchard Singapore (MOS). 
  • OUEHT’s spectacular YoY DPU growth is the highest posted by S-REITs under our coverage thus far.

MOS surprises with a 5% increase in RevPAR 

  • Surprisingly, 2Q17 RevPAR at Mandarin Orchard Singapore (MOS) increased 5% YoY to S$210. OUEHT's strategy of maintaining rates has paid off, with MOS ADR growing by an estimated 1-2% and occupancy growing around 3-4 ppt YoY to a mid-80% range. 
  • From what we understand, a stronger leisure segment helped to buoy rates; corporate demand continues to remain soft albeit stabilized. 
  • The ramp-up at Crowne Plaza Changi Airport (CPCA) continues to progress smoothly, with occupancy increasing from the 60% range when the extension opened to mid-70% in 2Q17. 
  • On the retail side, the strong results at Mandarin Gallery were mainly contributed by Victoria’s Secret, which helped to bump up the average occupancy rate from 79.1% in 2Q16 to 93.9%.

Top pick within hospitality 

  • Given brighter operational prospects in the near-term with a sunnier outlook for MOS and the healthy contributions expected from Mandarin Gallery, we lower our cost of equity from 7.9% to 7.6%. After adjustments, our fair value estimate increases from S$0.75 to S$0.82. 
  • We note that OUEHT is trading at a relatively attractive FY17F yield of 6.6%, relative to the 5.2% to 5.6% range for other hospitality REITs under our coverage. 
  • In the medium-term (two to four years), we continue to look forward to increased traffic at CPCA after the opening of Terminal 4 in 2H17. 
  • Given the positive operational outlook as well as currently undemanding unit prices, we re-iterate BUY on OUEHT as our top pick within the hospitality REIT sub-sector.

Deborah Ong OCBC Investment | http://www.ocbcresearch.com/ 2017-08-02
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 0.82 Up 0.750