New IPO Coverage - OUE Hospitality Trust (OUE H-Trust)

From Company's Prospectus

1. Business Description

Hospitality REIT with initial asset comprising of Mandarin Orchard Singapore and Mandarin Gallery. Like SPH Reit, OUE H-Trust is an iconic asset at the heart of Orchard Road. The sponsor for this OUE H-Trust is OUE, which is effectively owned by the Indonesia's Lippo Group.

From Company's Prospectus

Mandarin Orchard Singapore

World class hospitality in Singapore since 1971. Mandarin Orchard Singapore is an icon of world class hospitality in Singapore since 1971, Mandarin Orchard Singapore features 1,051 rooms, five food and beverage outlets, and approximately 25,511 sq ft of meeting and function space with a capacity of up to 1,840 people. The Hotel is one of the top accommodation choices in Singapore for leisure and business travellers globally.

From Company's Prospectus

Stable distributions with downside protection via 15 years Master Lease Agreement. Mandarin Orchard will be operated under a 15 years Master Lease Agreement (with a further 15 years renewal option) whereby a Fixed Rent will be guaranteed for OUE H-Trust, with a variable component allocated so that the unitholders are able to benefit from the out-performance of the hotel. Below diagram provides a summary to this Master Lease Agreement.

From Company's Prospectus

Mandarin Gallery

High end retail mall that complement the hotel to provide an integrated hospitality & retail experience for shoppers and hotel guest. Mandarin Gallery enjoys a high degree of prominence, boasting a wide frontage of 152 metres along Orchard Road. Featuring six duplexes and six street front shop units facing Orchard Road, the Mall is a choice location for flagship stores of international brands. The Mall comprises four levels of high end boutiques, shops and restaurants, and is complemented by Mandarin Orchard Singapore to collectively provide an integrated hospitality and retail experience for shoppers and hotel guests.

From Company's Prospectus

WALE of 2.4 years for Mandarin Gallery. Currently, Mandarin Gallery is having a 100% occupancy rate and has a WALE (weighted average lease term to expiry) of 2.4 years. As such, base on the Prospectus' projection, 69% of expected FY2014 revenue is stable and secured.

From Company's Prospectus

Strong acquisition pipeline. Again like SPH Reit, OUE H-Trust has the Right of First Refusal for the hospitality asset of their Sponsor, OUE. Below details the acquisition pipeline:

From Company's Prospectus

2. Use of Proceeds

From Company's Prospectus

3. Financial Highlights

Offering price of S$0.88, represent a 2.5% discount to NAV. OUE H-Trust's offering price of S$0.88 represents a 2.5% discount to its NAV.

Projected dividend of 7.36% & 7.46% in FY2013E & FY2014E respectively. Comparing against the recently concluded SPH REIT, OUE H-Trust boasts a higher projected dividend yield of 7.36% & 7.46% in FY2013E & FY2014E respectively. Nevertheless, this comparison is unfair as retail REIT provides a more resilient portfolio and is less cyclical when compared to a hospitality REIT which can be quite volatile. (think of how the tourism industry in Asia was impacted during SARS time)

From Company's Prospectus

Below are the financial statements from the prospectus for those who are interested:

From Company's Prospectus - Income Statement

From Company's Prospectus - Balance Sheet

From Company's Prospectus - Cash Flow

4. Investment Highlights

Yet another iconic Orchard Road asset. Do I need to say more on this? Like Paragon, Mandarin Gallery and Mandarin Orchard Singapore are iconic assets. It's the same story of being highly visible.

Strong Sponsor. Same story like SPH Reit. OUE H-Trust is backed by a well known Sponsor, the Indonesia's Lippo Group. Well, personally, I feel safer if its a Temasek-backed company as their Sponsor. Nevertheless, I won't complain. However, I need to highlight that Lippo Group is good but not great enough.  

Master lease arrangement (MLA) provides stability. MLA is a very common structure for hospitality REITs. Ascott Residence Trust has that too. So to a certain extent, it does provide some stability.

5. Investment Risk

Lack of upside catalyst. After hype of F1 racing and 2 integrated casinos in recent years, I struggle to find any upside catalyst for Singapore's tourism industry. Thus, the tourism scene will not witness any super-normal type of growth.

With a lack of extra-ordinary growth potential, there will be a no growth story to spin for OUE H-Trust. As a result, the share price will not have much upside growth traction.

6.Technical Analysis

This is very tricky.

Personally, with the closing deadline for OUE H-Trust being a day later than SPH Reit, it virtually tied up some liquidity in the market.

I can't really pin-point the technical demand for this and my best guess is that this will be weaker than SPH Reit. 

7. Conclusion

Like playing Texas Holdem, if I go "all in" for SPH Reit, I will only go mid way for OUE H-Trust.

I personally thinks that it will not perform as well for SPH Reit. But then again, I might be wrong.

8. Timetable

From Company's Prospectus