OUE Hospitality Trust - RHB Invest 2018-11-08: Banking On A Brighter 2019 Outlook


OUE Hospitality Trust - Banking On A Brighter 2019 Outlook

  • Maintain BUY and Target Price of SGD0.80, 16% upside.
  • OUEHT’s 3Q/9M18 DPU missed slightly at 24%/72%. We expect a better 4Q to offset some of the shortfall.
  • During the quarter, Mandarin Orchard Singapore registered a weak performance on the back of lower room rates and banquet sales and closure of its main ballroom for two weeks. Crowne Plaza Changi Airport, on the other hand, continued to deliver good growth with RevPAR increasing 6.3% y-o-y. Occupancy at Mandarin Gallery improved slightly at 96.8%, but rent reversions were negative 9.3%.
  • Overall, we remain positive on the 2019 outlook for the hospitality sector and expect a 3-7% RevPAR growth next year.
  • We are hosting management for an investor luncheon today and will provide more details after that.

3Q18 NPI was lower at 1.4% y-o-y

  • OUE Hospitality Trust (OUEHT)’s 3Q18 NPI was lower at 1.4% y-o-y driven by lower contributions from the hospitality segment. Despite a slightly lower revenue, NPI for the retail segment improved 1.7% y-o-y on the back of lower property expenses.
  • Finance expenses were lower 5.9% y-o-y due to a lower cost of borrowings. However, distributable income and DPU dipped 5.4%/5.9% y-o-y due to an absence of income support for Crowne Plaza Changi Airport (CPCA) hotel which was fully drawn down by 3Q17.
  • With a 9M18 DPU accounting for 72% of our forecast, the result was a slight miss.

Mandarin Orchard Singapore – hit by one-off events during the quarter.

  • Mandarin Orchard Singapore RevPAR for 3Q18 declined 3.7% y-o-y despite a general improvement in the SG hospitality sector performance. While occupancy was relatively steady, management noted that room rates were impacted by certain one-off factors, which included last minute cancellation of Japanese tour group business due to a typhoon, the absence of big US navy group business seen last year and closure of a main ballroom for two weeks.
  • F&B sales were also lower due to lower banquet sales. Management added that the performance in October was relatively stronger compared to last year.

Crowne Plaza Changi Airport ramping up steadily

  • Crowne Plaza Changi Airport ramping up steadily supported by healthy passenger traffic growth (+5.8% y-o-y, YTD Sep 2018) at Changi airport. RevPAR for the quarter rose 6.3% y-o-y driven by both occupancy and room rate increase. The asset is still receiving minimum rent as the master lease income was below the minimum rent threshold.
  • Based on our estimates, Crowne Plaza Changi Airport’s YTD RevPAR is currently c.6% lower than the breakeven threshold. We expect the RevPAR to exceed breakeven levels next year with visitor arrival outlook remaining rosy and opening of Jewel Changi Airport in early 2019 acting as catalyst.

Mandarin Gallery updates.

  • Mandarin Gallery committed occupancy at the end of 3Q18 improved to 96.8% (+0.1ppt q-o-q). However, rent reversions for base rent was 9.3% lower for leases signed during the quarter.
  • Management noted that many of the leases renewed during the quarter were in the 3rd and 4th storey of the mall which attract comparatively lower foot traffic and thus rentals were lower.

BUY with SGD 0.80 Target Price based on DDM (COE: 8.1%, TG: 2.0%).

  • OUEHT remains one of the pure-plays on the rebounding SG hospitality sector. The stock offers an attractive FY19-20F dividend yield of > 8%. A positive surprise could come from stronger-than-expected visitor arrival growth (base case: 4-7%).
  • Key risk is continued strengthening in SGD and a weaker-than-expected pick-up in corporate demand.

Vijay Natarajan RHB Securities Research | https://www.rhbinvest.com.sg/ 2018-11-08
SGX Stock Analyst Report BUY MAINTAIN BUY 0.800 SAME 0.800