OUE Hospitality Trust

OUE Hospitality Trust, Buy

Nov 8 close: S$0.69

Target price: S$0.85

DBS Group Research, Nov 8

FY18 is a transition year for OUE Hospitality Trust (OUEHT), given the loss of income support and share price correcting on the back of slower increase in revenue per available room (RevPAR) and fears over a rights issue similar to that conducted by its sister real estate investment trust (Reit), OUE Commercial Reit.

However, we believe these issues have largely been priced in as OUEHT currently trades at 0.9 times price/book value (P/B) which is in line with -1 standard deviation (SD) of its mean P/B, and its forward yield of 7.6 per cent is also close to +1SD of its mean yield of 7.7 per cent.

Between Q4 2017 and H1 2018, the market came around to our view that OUEHT should trade at a premium to book, given its leverage to a multi-year recovery in the Singapore hospitality market given limited new supply over the next two to three years and premium prices paid for hotels by property investors. However, the recent correction now places OUEHT at about 10 per cent discount to book. As we believe we are in the midst of a multi-year recovery, OUEHT should re-rate from the current level.

After incorporating slower RevPAR performance, we lowered our discounted cash flow-based target price to S$0.85 from S$0.90.

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