OUE Hospitality Trust - OCBC Investment 2017-11-02: Strong RevPAR Growth Continues

OUE HOSPITALITY TRUST SK7.SI

OUE Hospitality Trust - Strong RevPAR Growth Continues

OUE Hospitality Trust (OUEHT) posted a strong set of 3Q17 results last night. Revenue increased 5.4% YoY to S$34.0m, mainly supported by stronger contributions from the Hospitality segment. Retail revenue was 0.8% higher mainly due to the higher average occupancy in 3Q17.
Overall, OUEHT’s 3Q17 NPI increased 3.8% to S$29.5m while DI increased 10.9% to S$24.7m.
Without the income support for CPCA received this past quarter, 3Q17 DI would have been ~6.4% lower. 3Q17 DPU jumped 10.6% YoY to 1.36 S cents or 27.3% of our full-year forecast, which came in at the higher end of our expectations. 9M17 DPU came up to 77.6% of our full-year forecast.

RevPAR growth continued at Mandarin Orchard Singapore (MOS) in 3Q17 with an 8% YoY increase to S$242. Banquet and F&B sales also contributed to higher master lease income. The ramp-up at Crowne Plaza Changi Airport (CPCA) is proceeding healthily, with occupancy increasing from the 60% range when the extension first opened to the 80% range now seen in 3Q17. CPCA’s RevPAR has also grown YoY for Aug-Sept 2017: up 22% from S$147 last year to S$180. As expected, OUEHT has drawn down the full income support for CPCA this quarter.

As we roll our estimates forward, our fair value remains at S$0.82.
Going forward, we expect OUEHT to benefit from the expected recovery in the hospitality industry, though we do note the fall-off in income support from CPCA from 4Q17 onwards. Looking ahead to the next two to four years, we continue to anticipate increased traffic at CPCA after the recent opening of Terminal 4.
OUEHT has delivered 27.0% in total returns since we upgraded the stock to a Buy on 1 Nov 2016, 9.8 ppt more than that delivered by the FTSE Straits Times Real Estate Investment Trust Index.
Given that the REIT has rallied to a cent shy of our fair value, we downgrade OUEHT from Buy to HOLD on valuation grounds while maintaining our fair value.

Deborah Ong OCBC Investment | http://www.ocbcresearch.com/ 2017-11-02

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