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