SG Hospitality Sector - OCBC Investment 2019-03-05: Ascott Residence Trust Is Our New Top Pick

ASCOTT RESIDENCE TRUST (SGX:A68U) | SGinvestors.io ASCOTT RESIDENCE TRUST (SGX:A68U) OUE HOSPITALITY TRUST (SGX:SK7)

SG Hospitality Sector - Ascott Residence Trust Is Our New Top Pick

  • A good first two months.
  • OUE Hospitality Trust: Oakwood acquisition more likely than before.
  • Maintain Overweight on sector.



Positive total returns since start of the year



OUE Hospitality Trust (OUEHT): More likely than before that Oakwood Premier will be acquired this year

  • OUE Hospitality Trust is still trading at a discount to its peers – as of 4 Mar’s close, it offers a 7.1% FY19F dividend yield, compared to Far East Hospitality Trust’s 6.3% and CDL Hospitality Trusts’ 5.8%.
  • We continue to expect OUE Hospitality Trust’s assets to benefit from the benign hotel room supply situation locally and for its assets to receive a boost from Jewel Changi Airport’s opening and the Orchard rejuvenation plans. However, we believe that it is more likely that OUE Hospitality Trust will acquire sponsor’s asset Oakwood Premier within the year, based on an updated assessment of how well the asset has stabilized. While we believe bite-size of the asset is likely to be quite small (S$268m to S$322m), we do recognize that given the tight cap rates for recent transactions in the market, it is possible that the final transaction price may come in above our expectations.
  • To clarify, we do not see equity financing as a negative per se – it depends on whether it is paired with an asset acquisition that can contribute enough in additional income to compensate for the higher cost of financing. That said, the cost of equity creates a higher hurdle to cross and the potential acquisition remains an unknown. As such, we would prefer a more defensive pick.


Ascott Residence Trust: Our new top pick

  • We are choosing Ascott Residence Trust [Rating: BUY; Fair Value Estimate: S$1.25] as our top pick within the sector. Ascott Residence Trust started the year with strong 4Q18 results, with portfolio RevPAU growing 5% y-o-y and 8 out of 12 management contract geographies clocking positive RevPAU growth in SGD terms. The REIT boasts a highly geographically diversified portfolio of high quality assets and given the ongoing macroeconomic uncertainties we look upon this defensive positioning favourably.
  • Post the divestment of Ascott Raffles Place, Ascott Residence Trust's gearing is expected to drop to 32+%. This translates into a debt headroom of close to S$1b, and offers Ascott Residence Trust greater flexibility to pursue DPU accretive acquisitions.
  • Maintain OVERWEIGHT on Singapore Hospitality.





Deborah Ong OCBC Investment Research | https://www.iocbc.com/ 2019-03-05
SGX Stock Analyst Report BUY MAINTAIN BUY 1.250 SAME 1.250
BUY MAINTAIN BUY 0.820 SAME 0.820



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