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

4Q18 DPU Up 0.8% YoY

OUE Hospitality Trust’s (OUEHT) 4Q18 results were within expectations. 4Q18 gross revenue dropped 2.2% YoY 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% YoY to 4.99 S cents or 100% of our fullyear forecast.

As a whole, OUEHT’s hospitality segment clocked a 1.8% YoY 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% YoY 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 YoY to 99.1%. In addition, NPI increased 6.5% YoY 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 FEHT’s and CDLHT’s respectively. We previously upgraded OUEHT from Hold to BUY on 20 Sept 2018, 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 REIT’s unit price very attractive as at 30 Jan. Maintain BUY on OUEHT with a S$0.82 fair value.

Source: OCBC Research - 31 Jan 2019