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OUE Hospitality Trust – The Trust Of Choice?
Tradeable, Tradeable Ideas | 30 April 2014
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By: Raymond Leung
Articles (142) Profile
  1. OUE HT has made efforts to keep the impact of an interest hike to a minimum. The trust achieves this by hedging its interest rate risks using interest rate swaps.
  2. The establishment of a US$1 billion euro medium term note programme provides additional debt headroom for the trust to engage in refinancing.
  3. Strong performance by its current properties as well as the possible acquisition of Crown Plaza, Changi Airport, places OUE HT on a good footing for future growth.

OUE Hospitality Trust (OUEHT) is one trust that has made efforts in keeping the impact of an interest rate hike at its minimum. Interest rate risks are hedged as OUEHT fixed the interest rates of all its debts through interest rate swaps. The trust also keeps the exposure low by maintaining a low leverage ratio of 32 percent.

However, the fact remains that half of its debts will have to be refinanced by July 2016. Using the indication given by the US Federal Reserve, interest rates will likely increase by mid 2015. This would mean that the cost of debt will be higher when OUEHT refinances its debts. This could thus apply some pressure to the trust’s yields.

Source: Debt Maturity Profile, FY2013 Presentation, OUE HT

With the low leverage ratio, the option of early refinancing is still on the table for OUEHT. The trust may issue debts before mid 2015 and take advantage of the current low interest rates if they obtain a credit rating (leverage limit: 35 percent, no rating; 60 percent, with rating).

Earlier this month, OUEHT announced the establishment of a US$1 billion guaranteed euro medium term note programme. This facility will allow the trust to have ample debt headroom for refinancing as well as to acquire other properties.

News of a possible acquisition of Crowne Plaza Changi Airport from its sponsor (OUE Limited) has been circulating in the market. The property was last valued at $291 million and has a healthy occupancy of 88.4 percent.

Occupancy at the Crowne Plaza is expected to be higher with the government’s plan to expand Changi Airport. To prepare for the increased occupancy, OUE has plans to expand the hotel and add another 200 rooms to the property. Should the acquisition occur, it is anticipated to bring greater value to the trust.

OUEHT’s current properties have been performing well. Mandarin Gallery has been fully committed and Mandarin Orchard Hotel boasts a high occupancy rate of 90 percent.

For FY13, OUEHT attained a distributable income per unit (DPU) of $0.0662 which translates to a yield of 7.52 percent (based on issue price of $0.88). This is higher than the projected 7.36 percent as given in the prospectus.

At a yield of 7.52 percent, OUEHT has managed to be one of the top yielding hospitality trusts in the market.

In all, OUEHT is one of the ideal REITs in the market for investors who are still interested in yield plays. The high quality properties will provide stable yield while the management’s capital management strategy will mitigate the risk of the impending interest rate hike.

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Trained in fund management, Raymond is familiar with shares and various investment vehicles.

Please click here for more information about this author.

OUE Hospitality Trust  0.715 -- --   
Business: A stapled group comprising OUE H-REIT & OUE H-Biz Trust with a portfolio primarily focused in the hospitality &/or hospitality-related purposes.

Insight: May-19, 1Q19 revenue slid 3% due to lower revenue ... Read More

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