We believe OUE Hospitality Trust’s (OUEHT) underlying assets are well-positioned for the expected recovery in Singapore hospitality next year. Given that we see soft corporate demand as a potential risk for 2018, Mandarin Orchard’s relatively large focus on the higher-end leisure market is an advantage.

Meanwhile, Crowne Plaza Changi Airport (CPCA) should stand to benefit from the opening of Terminal 4 and climbing passenger movements at the airport. Changi Group reported that passenger movements were up +7.7% YoY in Jun, and +5.7% YoY for the Jan-Jun period. Remember that CPCA currently contributes only minimum rent as it continues to stabilize, which leaves much more room for upside than downside going forward.

As for Mandarin Gallery, we note that Singapore’s retail sales for watches and jewellery have clocked YoY increments every month YTD – perhaps a sign that luxury spending is making a recovery. While DPU growth is forecasted to be flattish in FY18 with the drop-off in income support, operating prospects continue to look robust for the medium term.

OUEHT is trading at an attractive FY17F yield of 6.6%, up to 140 bps above the 5.2% to 6.1% range for other hospitality REITs under our coverage. Given the positive operational outlook and undemanding unit prices, OUEHT is one of our top picks within the REITs space.

Reiterate BUY with a fair value of S$0.82.

Source: OCBC Research - 25 Aug 2017