SINGAPORE (Jan 5): OCBC Investment Research is maintaining its “hold” call on OUE Hospitality Trust on valuation grounds with a higher fair value estimate of 83 cents from 82 cents previously.
This comes on expectations of a 6.2% FY18 yield against Thursday’s closing price of 88 cents per unit, after adjusting the research house’s model parameters on a lower average cost of debt post the grant of a term loan and revolving loan facilities.
To recap, OUE HT on Dec 13 entered into a facility agreement with four banks for the grant of a term loan and revolving loan facilities amounting to $980 million, which brings the trust’s average cost of debt down to about 2.4% compared to 2.8% in 3Q17.
In a Friday report, lead analyst Deborah Ong says she still does not find the trust’s current unit price compelling – even as she remains positive on OUE HT compared to the four hospitality REITs under OCBC’s coverage, given its lower average cost of debt and expectations of a better supply-demand situation in the year ahead.
Ong also notes strong growth in passenger movements at Changi Airport, which she attributes to robust tourist arrivals in 4Q and believes would hence be positive for the rapidly-stabilising Crowne Plaza Changi Airport.
“That said, as has been noted in previous reports, the hotel supply injection last year was backend-loaded,” says the analyst, citing a number of hotels which made its debut in 4Q17, such as Andaz Singapore and Yotel Orchard Road.
“While hotel operators may face fiercer competition in 4Q17 and 1Q18, the rest of 2018 is expected to offer a significantly improved supply-demand situation. In 2018, the injection of additional hotel rooms is expected to be minimal, while both visitor arrivals and business demand are expected to grow mid- to high-single digit,” she adds.
The analyst also notes how OUE HT has received more price action as of late, rallying from 84.5 cents per unit as at the close of 27 Dec, to 87.5 cents as of Thursday.
As at 4.33pm, units of OUE HT are trading flat at 88 cents, or 6.34% FY18 dividend yield.
