OUE Hospitality Trust - CGS-CIMB Research 2018-11-07: Chugging Along

OUE HOSPITALITY TRUST (SGX:SK7)

OUE Hospitality Trust - Chugging Along

OUEHT's 9MFY18 DPU of 3.71 Scts (- 4.1% y-o-y) was in line with our expectations.
Mandarin Orchard Singapore’s (MOS) 9MFY18 RevPAR advanced y-o-y despite a weak 3QFY18, while Crowne Plaza Changi Airport (CPCA)’s operational performance continued to improve.
Maintain ADD for its attractive dividend yield of more than 7%.

OUEHT's 9MFY18 DPU of 3.71 Scts (-4.1% y-o-y) was in line with our expectations at 75.1% of our full-year forecast.
The lower DPU was due to the lower revenue from retail (-2.8% y-o-y) and the absence of income support for Crowne Plaza Changi Airport (CPCA) which was fully drawn down by 3Q17. This was partially offset by lower operating expenses and lower finance expenses.

Mandarin Orchard Singapore’s (MOS) 9MFY18 revenue improved 0.3% y-o-y to S$54.4m while 3QFY18 revenue dropped 3.5% y-o-y to S$19.1m.
9MFY18 RevPAR improved marginally by 0.9% y-o-y to S$225, mainly due to the strong RevPAR growth of 6.9% in 1QFY18.
In 3QFY18, RevPAR declined 3.7% due to lower average room rates. We understand that the lower room rate was due to sudden booking cancellations from Japanese tour groups as a result of the airport closure in Osaka due to typhoon as well as a higher base due to the large US navy group staying in the hotel in 3QFY17.

As for Crowne Plaza Changi Airport (CPCA), the hotel was still receiving minimum rent in 9MFY18. Nonetheless, underlying operational performance has been improving with 3QFY18 and 9MFY18 RevPAR increasing by 6.3% and 9.1% y-o-y to S$187 and S$179 respectively.
With the continue ramp-up of Terminal 4 as well as the opening of Jewel Changi Airport in 1H2019, we believe that CPCA will start to receive variable income in FY20.

Retail revenue declined 8.8% in 8MFY88 due to lower effective rent of S$88.8/sf/month (8MFY88 was at S$88.8).
While committed occupancy as at Sep 8888 increased from 88.8% to 88.8%, it reported a negative rental reversion of 8.8% in 8Q8888 versus +8.8% in 8QFY88.

We reduce our DDM-based target price as we raise our cost of equity assumption from 8.8% to 8.8%. However, we maintain our ADD recommendation for its attractive dividend yield of more than 8%.
Potential re-rating catalysts for the stock are faster-than-expected earnings recovery by CPEX and the acquisition of new assets.
Downside risks include dilutive acquisitions and slower-than-expected recovery in the Singapore hospitality market.

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://research.itradecimb.com/ 2018-11-07

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