OUE H-Trust – CIMB

Higher F&B revenue more than offsets lower RevPAR

OUEHT’s 1Q14 DPU was in line with expectations, at 24% of our full-year forecast and 4.3% above its IPO forecast. The better performance was due to higher F&B revenue from increased corporate meetings and banquet sales. The higher F&B revenue more than offset the lower 1Q14 RevPAR at S$248 (vs. IPO forecast of S$257). Retail rental income grew 8.5% yoy with higher occupancy and stable passing rent of S$23.60 per sq ft per month. OUEHT has operational NPI yield of 6% and FY14-15 dividend yields of 8%, the highest among its hospitality peers. We continue to view OUEHT as a more stable hospitality REIT and maintain our Add rating and DDM-based target price (discount rate: 7.9%.)

Higher F&B revenue more than offsets lower RevPAR

The higher F&B revenue was attributed to the increase in corporate meetings held and banquet sales. Management aims to increase the number of corporate guests in order to boost revenue. The proportion of corporate guests increased from 23-24% of total guests in 2013 to 28% in 1Q14.

1Q RevPAR of S$248 was flat qoq but fell 1.2% yoy, mainly due to the lower room inventory available due to ongoing renovation and lower number of Indonesian guests prior to the parliamentary election period in Apr. Excluding the lower inventory impact, RevPAR would be S$252 in 1Q14.

MG’s NPI rose 8.5% yoy due to higher occupancy and stable rent.

Continue to view OUEHT as a more stable hospitality play

Given that c.70% of FY14 revenue is fixed from retail rent and fixed rent from the hotel master lease, we continue to view OUEHT as a more stable hospitality play than its peers. Additionally, its capital structure is stable with gearing of 32%, 100% of debt fixed and no refinancing requirements until Jul 2016.

Maintain Add rating

OUEHT’s FY14-15 dividend yields of 8.0-8.1% are the highest among its hospitality peers (average of 7.1-7.3%). Given its stable structure and high-quality assets, we believe that there is further room for OUEHT to re-rate. We maintain our Add rating and target price of S$0.96.