SINGAPORE (Nov 6): RHB Research is keeping OUE Hospitality Trust (OUE HT) at “buy” and raising its target price to 88 cents, from 83 cents previously.

“With the opening of the new airport terminal and corporate demand pick-up, we expect the hotels to clock in a much stronger performance next year,” says analyst Vijay Natarajan in a report on Nov 2.

OUE HT posted a 10.6% growth in distribution per stapled security (DPS) of 1.36 cents for the 3Q ended September, from 1.23 cents a year ago.

Gross revenue grew 5.4% to $34.0 million in 3Q17, led by a 7.1% increase in revenue from its hospitality segment to $25.4 million on the back of higher master lease income from both Mandarin Orchard Singapore (MOS) and Crowne Plaza Changi Airport (CPCA).

See: OUE Hospitality Trust posts 10.6% jump in 3Q DPS to 1.36 cents

“With the successful opening of Changi Terminal 4 (on Oct 31) and limited hotel supply in the area, we anticipate demand to improve strongly (for CPCA) in coming quarters and expect occupancy to reach close to 90% levels next year,” Natarajan says.

Meanwhile, MOS saw its revenue per available room (RevPAR) increase by 8% y-o-y, beating expectations on the back of higher occupancy and room rates.

In addition, OUE HT’s Mandarin Gallery shopping mall put in a commendable performance during the quarter, despite a challenging retail outlook.

While the mall is expected to face negative rental reversions, Natarajan says the impact is likely to be mitigated by higher occupancy.

As at 3.19pm, units of OUE HT are trading half a cent lower at 81 cents, implying an estimated recurring price-to-earnings ratio of 20 times and a dividend yield of 6.3% for FY17.