OUE Hospitality Trust selloff offers buying opportunity: RHB

Singapore two-dollar bills

After the recent selloff, the yield on OUE Hospitality Trust has become more compelling, offering a buying opportunity, RHB said in a note.

The dividend yield for 2018-19 is at 6.7-7.2 percent, compared with the Singapore REIT average of 5.8-5.9 percent, the brokerage said on Wednesday.

RHB said the selloff may have been on concerns that the trust’s sponsor, OUE, had announced a proposed issuance of S$150 million exchangeable bonds (EB), which can be exchangeable for OUEHT shares at S$0.957 a unit.

“We believe the market’s likely concerns about its sponsor’s issuance of EBs is unwarranted, as it would have no material impact on its underlying dividend per unit,” RHB said. There’s no dilution impact and it would only result in the sponsor’s stake potentially falling to 29 percent form 37 percent, if it’s fully exercised, it said, adding the exchange price is above its target price of S$0.95.

At the same time, RHB noted that Singapore’s hospitality outlook looks strong.

“Our channel checks indicate that demand for hotel rooms remains strong, with good response for the Singapore Airshow and growing passenger traffic at Changi Airport,” it said.

It kept a Buy call, saying OUEHT remains its top hospitality sector REIT pick.

The unit was up 3.19 percent at S$0.81 at 1:03 P.M. SGT on Thursday.