Tuesday, June 24, 2014
OUEHT: MKE Initiates coverage, stating this as the only trust with a pure Orchard Road play, owning the integrated 125,000 sf high-end fashion mall Mandarin Gallery (MG; 30% of revenue and portfolio value) and the upscale 1,077-room Mandarin Orchard Singapore hotel (MOS; 70% of revenue and portfolio value). MKE views that OUEHT is a proxy for growing hospitality segment in Orchard Road. Yield is attractive at FY14E of 7.3%, highest among Singapore-based hospitality and retail SREITs. Aggregate leverage stands at 32.2%. DPU growth should be underpinned by modest room additions in Orchard Road and the ongoing refurbishments to upgrade 430 rooms at MOS. Limited new retail space on Orchard Road over the next 3 years and measures to optimize tenant mix at MG suggest scope for rental upside at MG. In addition, close proximity to key tourist attractions, commercial and medical clusters put them in good stead to ride various tourism waves. The sponsor, OUE Limited’s right of first refusal includes Crowne Plaza Changi Airport (320 rooms, S’pores first airport hotel). Post development of an adjescent site, the enlarged hotel will offer 563 rooms. Expected to be injected in 2015, this will be a catalyst for the trust. Maybank has a Buy on OUEHT with TP of $0.93.