Tuesday, September 17, 2013

OUE Hospitality Trust: The only pure Orchard Road play (OCBC)

OUE Hospitality Trust:
Fair value S$0.94
add: 12m dividend forecast S$0.046
versus: Current price S$0.870

The only pure Orchard Road play
• Good RevPAR performance in 1Q13
• Strong sponsor with ROFR pipeline
• 13.4% total returns with FV of S$0.94

Summary: OUE Hospitality Trust (OUEHT) is a stapled group consisting of OUE Hospitality Real Estate Investment Trust (OUE H-REIT), a REIT under which the initial portfolio is held, and OUE Hospitality Business Trust (OUE H-BT), a dormant business trust.
The initial portfolio of OUE H-REIT comprises Orchard Road area’s largest hotel, the 1,051-room Mandarin Orchard Singapore (MOS) and the 196,336 sq ft GFA Mandarin Gallery (MG). These assets make OUEHT the only pure Orchard Road play in the REITs/Business Trust space. This initial portfolio has an aggregate value range of S$1,705m-S$1,756m, based on independent valuation estimates. Approximately 69% of the valuation is from MOS. The current oversupply situation in the Singapore hospitality sector is a known concern. Given this, we are pleased to note that MOS clocked 3.3% RevPAR growth for pro forma 1Q13. It is also worthwhile noting that 46.7% of MG’s leases by NLA have attractive step-up rental increases of 5.5% p.a., with only 20.7% of all leases by NLA expiring in FY13 and FY14. Based on a dividend discount model, we arrive at a fair value of S$0.94 for OUE Hospitality Trust and initiate our coverage with a BUY.

Two landmarks in a premier location
OUE Hospitality Trust (OUEHT) is a stapled group consisting of OUE Hospitality Real Estate Investment Trust (OUE H-REIT), a REIT under which the initial portfolio is held, and OUE Hospitality Business Trust (OUE H-BT), a dormant business trust. The initial portfolio of OUE H-REIT comprises Orchard Road area’s largest hotel, the 1,051-room Mandarin Orchard Singapore (MOS) and the 196,336 sq ft GFA Mandarin Gallery (MG). MOS is a prominent, upscale hotel located along Orchard Road while MG is a notable landmark with 152 metres of prime Orchard Road frontage. These assets make OUEHT the only pure Orchard Road play in the REITs/Business Trust space. This initial portfolio has an aggregate value range of S$1,705m-S$1,756m, based on independent valuation estimates. Approximately 69% of the valuation is from MOS.

Some headwinds for hospitality, but largely in the price
The current oversupply situation in the Singapore hospitality sector is a known concern. Given this, we are pleased to note that MOS clocked 3.3% RevPAR growth for pro forma 1Q13. It is also worthwhile noting that 46.7% of MG’s leases by NLA have attractive step-up rental increases of 5.5% p.a., with only 20.7% of all leases by NLA expiring in FY13 and FY14.

Right of First Refusal (ROFR) for several assets
OUEHT’s sponsor is Overseas Union Enterprise Ltd, a well-established RE owner, developer and operator. There are currently three sponsor-granted ROFR properties, Crowne Plaza Changi Airport, Meritus Mandarin Haikou China and Meritus Mandarin Shantou China. These properties could provide some medium-term growth for OUEHT, potentially more than doubling the number of hotel rooms to 2,233.

Initiate with a BUY
Based on a dividend discount model, we arrive at a fair value of S$0.94 for OUE Hospitality Trust and initiate our coverage with a BUY.


Source/Extract/Excerpts/来源/转贴/摘录: OCBC-Research,
Publish date: 13/09/13

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