SINGAPORE (Nov 8): Despite announcing a 5.9% y-o-y drop in 3Q18 DPS to 1.28 cents, analysts still remain upbeat on OUE Hospitality Trust (OUE HT). The drop in DPS was mainly due to lower Retail revenue and an absence of income support for Crowne Plaza Changi Airport (CPCA).

The trust’s distributable income dropped 5.4% in 3Q18 to $23.3 million from $24.7 million last year. And gross revenue saw a 2.2% drop to $33.2 million compared to $34.0 million a year ago.

See: OUE Hospitality Trust posts 5.9% lower 3Q DPS on lower revenue & absence of income support

Following this announcement, CGS-CIMB Securities is reiterating its “add” call with a lowered target price of 82 cents, from 85 cents previously. This is due to the stock’s attractive dividend yield of more than 7%.

In 9M18, CPCA was still receiving minimum rent. But underlying operational performance has been improving, as 3Q18 and 9M18 RevPAR increased by 6.3% and 9.1% y-o-y, respectively.

In a Wednesday report, analyst Eing Kar Mei says, “With the continue ramp-up of Terminal 4 as well as the opening of Jewel Changi Airport in 1H19, we believe that CPCA will start to receive variable income in FY20.”

Similarly, RHB Research is maintaining its “buy” call on OUE HT with a target price of 80 cents.

Mandarin Orchard Singapore (MOS) saw revenue and RevPAR decline in 3Q18 by 3.5% and 3.7%, respectively, due to lower average room rates. This was despite a general improvement in the Singapore hospitality sector performance.

Although occupancy remained rather steady, the trust’s management said that room rates were impacted by one-off factors, including last minute cancellation of a Japanese tour group business due to a typhoon, which resulted in the airport closure in Osaka; the absence of a large US navy group staying in MOS, which was absent in this quarter; and the closure of a main ballroom for two weeks.

F&B sales were also lower due to lower banquet sales.

In a Thursday report, analyst Vijay Natarajan says, “OUE HT remains one of the pure-plays on the rebounding SG hospitality sector.”

Meanwhile, DBS Group Research has kept its “buy” recommendation on OUE HT with a lowered target price of 85 cents, from 90 cents previously.

In a Thursday report, lead analyst Mervin Song says, “Between 4Q17 and 1H18, 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 2-3 years and premium prices paid for hotels by property investors.”

However, the stock is currently trading at about 10% discount to book due to the recent correction and Song believes OUE HT should re-rate from the current level as it is in the midst of a multi-year recovery.

“While OUEHT’s distribution yield is high at current levels, making it difficult to find accretive acquisitions, we believe an inorganic strategy remains a key share price driver for the stock,” says the analyst.

Beyond its sponsor’s OUE Downtown serviced apartments, the trust is also seeking opportunities in Europe, the US and Japan.

As at 11.35am, units in OUE HT are trading at 69 cents or 0.9 FY19 book with a dividend yield of 8.1%.