SINGAPORE (April 3): RHB is upgrading OUE Hospitality Trust to “buy” from “neutral” as it sees sector headwinds receding in 2H17 with catalysts emerging.
Construction of Changi Airport’s Terminal 4 has been completed and is slated to open early 2H17.
T4 would be able to handle 16 million passengers p.a. bringing total annual capacity to 85 million.
One of the direct beneficiaries of this new terminal would be OUE Hospitality Trust’s (OUEHT) Crowne Plaza Changi Airport Hotel (CPCA), being the only hotel located within the airport premises.
CPCA has a total of 563 rooms with an occupancy rate of around 70% in 4Q16.
With the opening of the new terminal, RHB expects airlines to increase frequencies and add new destinations.
This should result in higher volumes of airline crew and transit passengers, who are among CPCA’s key customers.
“We expect revenue per available room (RevPAR) to increase 5% this year, and 9% next year,” says analyst Vijay Natarajan in a Monday report.
Meanwhile, 2017 would see an estimated 3,767 rooms coming on stream based on Howrath HTL and CDL Hospitality Research data, which should put pressure on RevPAR.
However, in 2018, this should ease to 69 rooms coming on stream.
“Over the next three years, hotel room supply is expected to grow at a CAGR of 2.7% and we expect demand growth (3-5%) to outstrip supply growth,” says Natarajan.
In 4Q16, Mandarin Gallery’s occupancy improved to 94.1% with the moving in of its two new tenants Michael Kors and Victoria’s Secret.
While overall retail climate remains challenging, the lack of new retail supply in the Orchard area mitigates some of the downside risk.
“About 18% of its leases (by rent) are due for renewal in 2017, for which we expect negative rent reversions of 5-15%,” says the analyst.
Units of OUE Hospitality Trust are trading at 69 cents.
