OUE Hospitality Trust - OCBC Investment 2018-01-05: 2018 – A Positive Year For Operations

OUE Hospitality Trust - OCBC Investment 2018-01-05: 2018 – A Positive Year For Operations OUE HOSPITALITY TRUST SK7.SI

OUE Hospitality Trust - 2018 – A Positive Year For Operations

  • Reduced cost of debt.
  • Trading at 6.2% FY18F yield.
  • FV increases to S$0.83.

Average cost of debt decreases from 2.8% to 2.4% 

  • On 13 Dec 2017, the trustee of OUE Hospitality Trust (OUEHT) entered into a facility agreement with four banks for the grant of term loan and revolving loan facilities amounting to S$980m.
  • On 19 Dec 2017, OUEHT drew down on the term loan facilities and completed the refinancing of S$859m of total outstanding debts ahead of their maturity. After the refinancing, more than 70% of OUEHT’s interest is fixed via interest rate swaps (IRS) and the weighted average maturity tenure of OUEHT’s IRS has been extended from about 1.3 years to > 3.7 years as at 19 Dec 2017.
  • OUEHT’s average cost of debt is now ~2.4%, compared to 2.8% for 3Q17.

Better supply-demand situation in 2018 

  • The growth in passenger movements at Changi Airport remains strong – increasing 8.1% YoY in Oct and also in Nov. This is likely indicative of robust tourist arrivals in 4Q17 and would be a positive for Crowne Plaza Changi Airport, which has been stabilizing rapidly. 
  • That said, as has been noted in previous reports, the hotel supply injection last year was backend-loaded. Andaz Singapore (342 rooms), Yotel Orchard Road (610 rooms), and Sofitel Singapore City Centre (223 rooms), and Inter-Continental Robertson Quay (225 rooms) opened their doors in Oct 2017; Novotel and Mercure Singapore on Stevens (772 rooms combined) also debuted in the fourth quarter. 
  • While hotel operators may face fiercer competition in 4Q17 and 1Q18, the rest of 2018 is expected to offer a significantly improved supply-demand situation. 
  • In 2018, the injection of additional hotel rooms is expected to be minimal (~1.7% of existing supply), while both visitor arrivals and business demand are expected to grow mid- to high- single digit. 
  • After adjusting our model parameters on the lowered average cost of debt, our fair value increases from S$0.82 to S$0.83 and we expect a 6.2% FY18F yield against yesterday’s closing price. 
  • The stock has received more price action as of late, rallying from S$0.845 as at end-27 Dec 2017 to S$0.875 as of yesterday. We still do not find OUEHT’s current unit price compelling, though we remain most positive on OUEHT out of the four hospitality REITs under our coverage.
  • Maintain HOLD on OUEHT on valuation grounds.

Deborah Ong OCBC Investment | http://www.ocbcresearch.com/ 2018-01-05
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 0.83 Up 0.820