OUE Hospitality Trust - OCBC Investment 2019-01-31: 2019 Is The Year!


OUE Hospitality Trust - 2019 Is The Year!

  • One of two SG-based hospitality REITs.
  • New plans for Orchard Road.
  • Compelling valuations vs. peers.

4Q18 DPU up 0.8% y-o-y

  • OUE HOSPITALITY TRUST (SGX:SK7, OUEHT)’s 4Q18 results were within expectations. 4Q18 gross revenue dropped 2.2% y-o-y to S$33.1m while NPI dropped 1.0% to S$28.9m due to lower income from the hospitality segment, partially offset by a higher retail contribution. 4Q18 DPU increased 0.8% to 1.28 S cents while FY18 DPU dropped 2.9% y-o-y to 4.99 S cents or 100% of our full-year forecast.
  • As a whole, OUEHT’s hospitality segment clocked a 1.8% y-o-y increase in RevPAR in 4Q18. In particular, Mandarin Orchard Singapore’s RevPAR was up 1.6% to S$229 for the quarter, on the back of better occupancy, boosted by better demand from both transient and corporate segments. However, NPI for MOS was down 2.4% to S$18.3m in 4Q18 due to lower banquet sales. We note that the Grand Ballroom at MOS has just reopened two days ago.
  • Meanwhile, Crowne Plaza Changi Airport’s (CPCA) RevPAR was up 2.1% y-o-y to S$180 for the quarter. CPCA continues to receive minimum rent, and we expect the asset to surpass the requisite RevPAR threshold for variable rent (a RevPAR of ~S$190 or so) in FY19.
  • Meanwhile, with regard to OUEHT’s retail segment, we see traction at Mandarin Gallery, with committed occupancy increasing 4.5 ppt y-o-y to 99.1%. In addition, NPI increased 6.5% y-o-y due to lower property tax despite a flattish revenue.

Attractive outlook, compelling valuations

  • We are optimistic about OUEHT’s prospects in 2019, given
    1. its current positioning as a Singapore-only hospitality REIT,
    2. the benign hotel room supply situation, as well as
    3. the anticipated opening of Jewel Changi Airport early this year which should boost RevPARs at CPCA.
  • In addition, MOS looks to benefit from the proposed plans to rejuvenate Orchard Road, which were announced yesterday. As part of a year-long trial by the Orchard Road Business Association (expected to start in Apr), Orchard Road will see more activities such as retail and food and beverage pop-ups, and arts and entertainment events. OUEHT’s valuations remain very compelling as at 30 Jan 2019.
  • After incorporating the latest set of results, our fair value has increased from S$0.79 to S$0.82.
  • As at 30 Jan’s close, OUEHT is trading at a 7.2% FY19F yield, ~70 bps and ~150 bps above FAR EAST HOSPITALITY TRUST (SGX:Q5T)’s and CDL HOSPITALITY TRUSTS (SGX:J85)’s respectively.
  • We previously upgraded OUEHT from Hold to BUY on 20 Sept 2018 (see report: OUE Hospitality Trust - Too Cheap To Ignore), on the back of OUEHT’s dramatic share price decline. Since then till 30 Jan’s close, it has posted total returns of 7.0%, outperforming the Straits Times Index by 6.7 ppt and the FTSE Straits Times REIT Index by 1.6 ppt.
  • We continue to find the OUEHT’s unit price very attractive as at 30 Jan. Maintain BUY on OUEHT with a S$0.82 fair value.

Deborah Ong OCBC Investment Research | https://www.iocbc.com/ 2019-01-31
SGX Stock Analyst Report BUY MAINTAIN BUY 0.790 SAME 0.790