• Expecting higher demand in 2H
• Well positioned for uptick
• Positives likely priced in

Anticipating a better 2H14

We expect OUE Hospitality Trust (OUEHT) to benefit from a seasonally higher hospitality demand in 2H14. A check on the preliminary hotel statistics published by Singapore Tourism Board (STB) painted an improved hospitality outlook in Jul – RevPAR grew by 5.4% MoM to S$223.4, while average occupancy rate increased to 90% from 84.9% in Jun. While the international tourist arrivals to Singapore declined by 2.5% for the first seven months of 2014, we note that the number of arrivals in Jul represented a 19.2% MoM jump to 1.4m. More importantly, the arrivals from Asia registered a 16.7% MoM increase in Jul. Given that Asia formed ~74% of OUEHT’s Mandarin Orchard Singapore (MOS) customer profile for 1H14, we believe that OUEHT is likely to put on a better showing in 2H should the demand be sustained.

Recent interim results met expectations

In 2Q14, OUEHT delivered a consistent set of results. NPI and income available for distribution came in at S$25.2m and S$21.1m respectively, which was 1.2% and 2.5% higher than its respective prospectus forecasts. DPU for the quarter was also 2.5% above its forecast at 1.64 S cents. For 1H14, DPU amounted to 3.32 S cents, meeting 49.5% of our full-year distribution projection. While 2Q RevPAR of S$242 missed its prospectus forecast of S$258, we understand that this was partly due to the accelerated renovation schedule in the quarter to capture the expected uptick in hospitality demand in 2H. As at Jul, 160 out of a total of 430 guestrooms have completed refurbishments. This would allow OUEHT to leverage on the newly renovated rooms to attract customers seeking a premium accommodation in Orchard Road area, in our view.

Maintain HOLD on valuation grounds

We are making minor adjustments to our FY14 forecasts since the interim results were largely consistent with our expectations. There is no change to our fair value of S$0.85. Maintain HOLD as OUEHT appears to be fairly priced at current level.

Source: OCBC Research - 9 Sep 2014