HOSPITALITY

HOSPITALITY | NEUTRAL

OCBC Investment Research, Oct 10

Singapore Tourism Board figures as well as feedback from industry sources suggest a somewhat flat quarter in terms of distribution per unit growth for upscale and mid-tier hotels, with the latter outperforming the former.

Meanwhile, there is no major change in outlook on serviced residences as demand is expected to remain soft amid the US-China trade tensions.

OUE Hospitality Trust (OUEHT) is our top pick after the recent rout, with OUEHT's unit price trading below book at about 0.9 times FY18 forecasted price/book ratio and a 7.3 per cent FY18F and 7.5 per cent FY19F dividend yield as at Tuesday's close.

While we cannot rule out the possibility that OUEHT could acquire a sizeable non right of first refusal asset (which may need rights issue, given OUEHT's relatively high gearing of 38.7 per cent), we believe there is nothing particularly suggestive of this to warrant a sharp unit price decline.

Meanwhile, we believe Crowne Plaza Changi Airport hotel is at the cusp of surpassing its minimum rent and with the opening of the nearby Jewel Changi Airport (expected end-March next year), we see room for the hotel to contribute beyond this threshold.

While we now expect greater revenue per available room growth pickup next year instead of H2 2018, we believe there are selective opportunities with the hospitality sub-sector.

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