Share Price S$2.85
Target Price S$3.63
Lodges Preliminary Prospectus For OUE Hospitality Trust
OUE is looking to raise S$600m-675m with the IPO of OUEHT which will offer a forward yield of 7.3-7.5%. By retaining a larger 43-48% stake in OUEHT, OUE will better align with new OUEHT unitholders, while the potential special dividend of 5-8% is still attractive. Maintain BUY with an unchanged target price of S$3.63/share which is pegged at a 20% discount to our RNAV of S$4.54/share.
• Lodges preliminary prospectus for OUEHT. Overseas Union Enterprise (OUE) has lodged its preliminary prospectus for OUE Hospitality Trust (OUEHT). OUEHT will be offering 434.6m new units to public and institutional investors at S$0.88-S$0.90 per unit to raise S$382m-452m, while a further 247.2m units will be offered to cornerstone investors to raise S$218m-223m. The total amount of funds raised will range from S$600m-675m.
• Cornerstone investors include Credit Suisse (Private Banking and Wealth Management), Goldhill Group, Gordon Tang, Lucille Holdings and Splendid Asia Macro Fund. Lead managers for the offering include Credit Suisse, Goldman Sachs and Standard Chartered, with co-leads Bank of America Merrill Lynch, Deutsche Bank and OCBC.
• Retaining a larger stake in OUEHT. Figures from the preliminary OUEHT prospectus indicate that OUE will be retaining a larger stake of between 42.7-47.9% (depending on offering price and whether the overallotment option of 68.2m units is exercised) in OUEHT as opposed to its earlier intentions to retain a 30% stake.
• More closely aligned with OUEHT unitholders with the larger stake. In addition, given the recent volatility in the REIT markets, the smaller free float will help to ease the book-building process.
• Special dividend still substantial with a 5.0-8.3% yield based on the current share price and a payout ratio of 30-50% of the remaining net cash proceeds following the offering. This is lower than our initial estimates of a 6-10% payout, although the higher stake retained will generate long-term dividend income for OUE.
• Gearing to improve to 22% post-listing of OUE H-REIT from 62.1% currently. The lower gearing will provide opportunities for OUE to leverage on its balance sheet to pursue development projects across geographies and property segments.
• OUEHT to offer a forward yield of 7.3-7.5%, based on an initial offering price of S$0.88-S$0.90 per unit. This is marginally higher than the average 7.2% forward yield for Singapore-listed hospitality trusts sector, while OUEHT offers a quality initial Singapore portfolio anchored by Mandarin Gallery (S$536m/31%) and Mandarin Orchard (S$1,220m/69%).
• The choice of Mr Chong Kee Hiong as CEO of OUE H-Trust should be viewed favourably by the market. Mr Chong Kee Hiong brings immense experience in the hospitality industry, having served as the CEO of The Ascott Limited in his last appointment and the CEO of Ascott Residence Trust from Mar 06 to Feb 12.
• ROFR granted to OUE H-Trust. OUE has granted a Right of First Refusal (ROFR) to OUE H-Trust to acquire relevant hospitality assets in the pipeline. OUE has identified S$413m worth of hospitality assets, including Crowne Plaza Changi Airport, Meritus Mandarin Haikou and Meritus Shantou China, for potential divestment into OUE H-Trust. Further developments such as the addition of 200 rooms at Crowne Plaza Changi Airport and the partial conversion 163,000sf of NLA at 6 Shenton Way into serviced apartments will boost pipeline assets.
Earnings Revision/Risk • We retain our forecasts pending the listing of OUEHT and further details from management.
Valuation/Recommendation • Maintain BUY with an unchanged target price to S$3.63/share which is pegged at a 20% discount to our RNAV of S$4.54/share. We leave our RNAV unchanged pending confirmation on the successful listing of the hospitality REIT. OUE is trading at a steep 37% discount to its RNAV.
Share Price Catalyst
• Hospitality REIT IPO.
• Pick-up in office leasing activity.
• Positive newsflow from increasing visitor arrivals to Singapore.
• Further acquisitions and new developments
Source/Extract/Excerpts/来源/转贴/摘录: UOB Kay Hian research
Publish date: 11/07/13