OUE Hospitality Trust - OCBC Investment 2017-08-25: Compelling Risk-reward

OUE Hospitality Trust - OCBC Investment 2017-08-25: Compelling Risk-reward OUE HOSPITALITY TRUST SK7.SI

OUE Hospitality Trust: - Compelling Risk-reward

  • We believe OUE Hospitality Trust’s (OUEHT) underlying assets are well-positioned for the expected recovery in Singapore hospitality next year. 
  • Given that we see soft corporate demand as a potential risk for 2018, Mandarin Orchard’s relatively large focus on the higher-end leisure market is an advantage. Meanwhile, Crowne Plaza Changi Airport (CPCA) should stand to benefit from the opening of Terminal 4 and climbing passenger movements at the airport. 
  • Changi Group reported that passenger movements were up +7.7% YoY in Jun, and +5.7% YoY for the Jan-Jun period. Remember that CPCA currently contributes only minimum rent as it continues to stabilize, which leaves much more room for upside than downside going forward. 
  • As for Mandarin Gallery, we note that Singapore’s retail sales for watches and jewellery have clocked YoY increments every month YTD – perhaps a sign that luxury spending is making a recovery. 
  • While DPU growth is forecasted to be flattish in FY18 with the drop-off in income support, operating prospects continue to look robust for the medium term. OUEHT is trading at an attractive FY17F yield of 6.6%, up to 140 bps above the 5.2% to 6.1% range for other hospitality REITs under our coverage. 
  • Given the positive operational outlook and undemanding unit prices, OUEHT is one of our top picks within the REITs space. Reiterate BUY with a fair value of S$0.82.

Deborah Ong OCBC Investment | http://www.ocbcresearch.com/ 2017-08-25
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 0.820 Same 0.820