OUE HOSPITALITY TRUST
SK7.SI
OUE Hospitality Trust - In A Good Position For A Rebound
- OUEHT's 2Q results were in line. The hotel segment turned in a strong performance with a turnaround in RevPAR (MOS +5%YoY), backed by demand pick-up.
- We expect better performance ahead, driven by a double boost from the opening of Changi’s T4 and gradual tapering of hotel supply.
- Retail segment occupancy improved, with new tenants moving in. Shopper traffic and tenant sales also saw a slight improvement.
- We expect OUEHT to benefit from the expected turnaround in the hospitality segment. Maintain BUY with a higher TP of SGD0.83 (from SGD 0.78, 9% upside).
Better-than-expected performance from Mandarin Orchard Singapore (MOS).
- Revenue per available room (RevPAR) increased 5% YoY, boosted by both increase in occupancy (~3-4ppts) and higher rates (+1-2%).
- The increase in demand was driven mainly by leisure travellers (transient demand), especially from Japan and India.
- Corporate demand, though stabilised, still remains weak.
- The food & beverage (F&B) segment also performed better, ~+10% YoY.
- Management intends to maintain its strategy of holding up the rates and expects a stronger 2018.
CPCA occupancy stabilising.
- Crowne Plaza Changi Airport (CPCA) occupancy came in at mid-70% (flat QoQ), while room rates were slightly lower than 1Q.
- With 2Q being the seasonally weaker quarter, management expects occupancy to improve in the coming quarters and targets to achieve 80% levels. We believe that with the opening of Changi Airport Terminal 4 (T4) in 3Q17F and lack of new supply in the area, the higher occupancy and room rates would be easily achievable.
- Notably, CPCA’s RevPAR has come down by 20-30% from its peak, thus offering more scope for a rebound.
Retail – decent performance despite challenges.
- Net property income (NPI) from the retail segment increased 20% YoY. The key reason was the healthy increase in occupancy at Mandarin Gallery of 93.9% YoY (+14.8ppts YoY) as new tenants moved in.
- More importantly, tenant sales (same store) and shopper traffic also saw slight improvement. The mall’s effective achieved rents were SGD23.80 psf/month (-3% YoY). About 9% and 22% of leases are due for renewal in FY17F-18F – we expect negative rent reversions of ~10%.
Three key catalysts for hospitality sector turnaround in 2018.
- Key factors favouring a rebound in 2018F are: the opening of T4 by 3Q17, which would boost passenger handling capacity by ~24%; 2018 being an even year, which would mean more calendar events boosting corporate demand; and lastly, a limited supply pipeline.
- While the near-term outlook remains challenging, with RevPAR expected to decline ~2-3% in 2017, we expect a mid single-digit increase in 2018F RevPAR on the back of the above catalysts.
Maintain BUY on OUE Hospitality Trust (OUEHT) with a higher Target Price of SGD0.83.
- We have tweaked our DDM model by lowering our CoE assumptions by 50bps to 7.3% by reducing our risk free rate assumptions. Our TG remains unchanged at 2%.
- Valuations remain attractive, with the stock offering FY17F- 18F yields of 6.7% and 6.9% respectively.
- Key risks to our assumptions are the lower-than-expected pick-up in visitor arrivals and strong SGD.
Vijay Natarajan
RHB Invest
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http://www.rhbinvest.com.sg/
2017-08-02
RHB Invest
SGX Stock
Analyst Report
0.83
Up
0.780
