Wednesday, November 13, 2013

OUE Hospitality Trust : Key takeaways from post-inaugural results investor luncheon (CS)

OUE Hospitality Trust
Price (08 Nov 13, S$) 0.88
TP (prev. TP S$) 1.04 (1.04)
Key takeaways from post-inaugural results investor luncheon

Credit Suisse hosted OUEHT's post-inaugural results investor luncheon (results note here) in Singapore. OUEHT was represented by CEO Chong Kee Hiong and CFO Rudi Chuan.

● Key highlights: (1) MOS REVPAR growth was driven by higher Transient customers and higher occupancy; (2) supply is likely to remain an overhang sector-wide, although management believes MOS should have better pricing power post AEIs of its 430 rooms in 2014 and given its prime location; (3) MG is ~100% occupied: healthy rent reversions and tenant sales, especially F&B tenants.

● Near-term acquisitions, if any, will likely be third party as Crowne Plaza Changi Airport's Phase 2 extension works kick off soon. Management said Japan, Indonesia and the Philippines look interesting with more attractive yields, as the bid-ask spread on Singapore assets widens. Gearing is 32% though management plans to get a credit rating to increase their acquisition headroom.

● Maintain OUTPERFORM: At 7.4% FY14E yield, risk-reward looks attractive as prices imply c. 30% decline in FY14's REVPARs (1H13 REVPAR +3.4% to S$252, this period was S$261).

Credit Suisse hosted OUEHT's post-inaugural results investor luncheon (inaugural results note here) in Singapore. OUEHT was represented by CEO, Chong Kee Hiong and CFO, Rudi Chuan.

Key highlights:
(1) Strong REVPAR growth: REVPAR grew 14% YoY to S$261 for the period of 25 July (IPO) to 30 September, beating management's forecast of S$253 by 3.2%. We understand that the REVPAR increase was amongst the highest among the hotels in the Orchard Road area. REVPAR growth was driven by a high occupancy of 90%-plus and increase in business from the Transient segment (which pays better rates than Wholesale segment). This was partly due to higher bookings from its hotel website. Approximately 50% of revenue was contributed by the transient segment in 3Q13 and going forward, management targets 55%. Looking ahead into 2014, OUEHT plans to increase more corporate accounts and RFPs. Corporate customers would be given priority check-ins as a means of value add. Management said corporate rates have not fallen and will be aiming to increase its contribution to 30% of total revenue from the current 24%.

(2) Supply concerns about the hospitality sector: Management believes overall industry players will unlikely increase their rates next year due to supply pressures. That said, they are not too overly concerned about any cannibalisation of their business due to MOS's superior location in the heart of Orchard Road. Management also expects some S$20-30 increase in average room rates post refurbishments of 430 rooms commencing in 2014.

(3) Mandarin Gallery (MG): MG is approximately 100% occupied, with average lease terms of 2.5 years. Management said there was one lease renewal in 3Q13 which has a positive rental reversion. Separately, tenant sales and rents saw positive growth, while its F&B tenants are doing well.

(4) Fund raising exercise: Due to concerns about Fed tapering, investors were worried if the recent capital raising by various REITs could be a sector-wide phenomenon as they raise equity capital in a bid to decrease gearing levels to bring down exposure to rising interest rates. Management does not think there is enough reason to believe that there is a 'panic' in the sector as any equity issuance is generally accompanied by a yield accretive acquisition. OUEHT and other REITs likewise would likely have enough confidence on the impending acquisitions before raising equity. OUEHT will also be looking to get a credit rating to increase their debt headroom to facilitate funding of future acquisitions.

(5) Acquisition outlook: Management views acquisitions in Singapore remains challenging (buyers are being priced out with sellers looking to divest at prices close to 4% cap rate). However, overseas markets such as Japan, Indonesia and the Philippines are looking attractive with their higher yields. OUEHT would consider foreign markets. Management also guided that any potential acquisition from sponsor next year seems unlikely as Crowne Plaza Changi Airport asset will be undergoing AEI (phase 2 of development with a new extension), and any acquisition, if any, would likely be from third party. OUEHT has 32% gearing currently, with 2.2% cost of debt (100% fixed with average tenure of 3 years [50:50 in 2016/2018 expiry]—no refinancing due in 2014/2015).

OUEHT trades at a 7.4% FY14E yield. We believe the risk-reward looks attractive as we estimate that current prices imply about a 30% decline in FY14's REVPARs when MOS has so far consistently delivered better-than-industry growth (1H13 REVPAR +3.4% to S$252, this period, REVPAR was S$261).

Source/Extract/Excerpts/来源/转贴/摘录: CS-Research,
Publish date: 11/11/13

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