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Some might be more interested in OUE Hospitality Trust than SPH Trust because the distribution yield the former has promised is higher at 7.46% compared to the latter's 5.79%.
Although the two are not strictly comparable since they are holding different types of real estate, let us look past that for now and just concentrate on the numbers to see which one is a better deal.
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| Mandarin Hotel. |
OUE Hospitality Trust is being offered at a small discount to NAV while SPH REIT is being offered at a small premium to NAV. Oh, I like a discount!
OUE Hospitality Trust is going to have a gearing level of some 32.8% while SPH REIT's gearing level is 27.3%. Oh, I like SPH REIT more now because its gearing level is lower.
Leverage, of course, makes it harder to see the underlying yield. If we were to remove leverage and assume that there was none, we see that OUE Hospitality Trust approximately yields 5.62% while SPH REIT yields 4.55%. The former still gives us 1.1% more a year!
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| SPH REIT's Clementi Mall. |
OUE Hospitality Trust has 2 properties and apparently they have 44 years left to their leases. SPH REIT has 2 properties too. The Paragon will have a fresh 99 years lease while Clementi Mall has a few years lesser than that. I like longer leases, for sure.
So, although OUE Hospitality Trust is able to generate 1.1% more return per year compared to SPH REIT, the life of its assets is less than half of SPH REIT's, assuming the status quo is maintained.
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| Ariake Sunroute Hotel |
Like OUE Hospitality Trust, Ascendas Hospitality Trust also had its IPO priced at 88c.
Ascendas Hospitality Trust last traded at 85.5c which is still at a slight premium to its NAV. At 85.5c, it has an estimated distribution yield of 8.57% and a gearing level of about 35%. 90% of its assets are in Australia and Japan. These are freehold in nature!
AK is just talking to himself.
Related posts:
1. Ascendas Hospitality Trust.
2. SPH or SPH REIT?
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15 comments:
AK, I am totally baffled by the valuation of OUE assets. I can't seem to understand how did they manage to get a valuation of $536 mil with a net property income of $27 mil and a 5.25% cap rate. Typically, for freehold ppty u can take NPI divide by cap rate to arrive at the valuation but not a ppty with just 43 yrs left!
Hi Garfield,
A guest blog post from you on this matter perhaps? Send to my email address: ak71@sillypore.com
Thanks from all of us in advance. ;)
Ak,
Bo Eng lah...Working through the weekend.. Just browsing thro the report to see whether should i make a punt on this. I think SPH REIT is a better bet....
Promise when I am free will send u something and you must publish hor.
Hi Garfield,
You are the kind of highly productive people our government wants! Worked through the weekend? Wow! ;)
OK, will wait for your contribution with bated breath. ;p
AK,
Long time to speak (write).
There is no free lunch for both lah.
For SPH reits, I believe the management fee is paid either in cash or unit or both. FY2014 management free is 100% in units (read prospectus page 21-22)which actually results in dilution in EPS for subsequent year. If SPH reits were to take 100% of management fee in cash for futre years, the annualised yield for SPH will drop.
The dilutive effect and selling of shares will weigh on the share price in the long run. Also the management fee is such a high percentage of distributable income is because SPH charges 0.25% of asset value and 5% of NPI as a REIT Manager and 2% of Revenue and 2% of NPI as a Property Manager.
As for OUE I believe you and Garfield have listed most of the negative points in your post.
So how? :)
YH
Hi YH,
Thanks for sharing your thoughts. Appreciate it.
So how? Er... Boycott both IPOs lor. ;p
When will I know if i heng heng got the shares? where to see and what time?
thanks.
Hi Becker,
If you are successful, your CDP account will be credited. You can check your account online. Call CDP for a form to fill up if you cannot yet do this.
Stapled securities of OUE Hospitality Trust will begin trading on the Singapore Exchange at 2 p.m. The company said the public offer was around 19.1 times subscribed by retail investors.
REUTERS
OUE Hospitality Trust, backed by Indonesian tycoon Stephen Riady’s hotel and property group, opened 0.6% above its initial public offer price on Thursday after pricing its issue at the bottom of an indicative range.
OUE Hospitality’s stapled securities opened at $0.885 versus the IPO price ofS$0.88. Within the first few minutes of trading, more than 20 million stapled securities had changed hands.
- REUTERS
Newly-listed OUE Hospitality Trust had an uneventful listing debut on the Singapore Exchange on Thursday, as it ended its first trading day unchanged from its offer price at 88 cents.
The REIT's first day performance was partly weighed down by broad weakness in the market.
The REIT briefly hit an intra-day high of 89 cents, 1.1 per cent higher than its offer price. However, it could not hold on to gains as the broad market sentiment was weak.
- CNA
hi AK,
I know this is an old post but I'm wondering if you have considered OUE Limited, the parent instead?
Also understand OUE has the intention to spin off another reit.
Hi Cindy,
Nope and it is not because I think OUE is not a good investment. My plate is full now and I am not adding anything new. However, if you have done some FA on OUE, please feel free to share with us here. :)
KGI Fraser on Friday downgraded OUE Hospitality Trust to "hold" in view of a challenging environment and cut its target price to S$0.99 from S$1.04, implying an 8.9 per cent upside (including dividends).
"Nevertheless, we may buy again on the dips as OUE Hospitality Trust offers a high 7.0 per cent FY2015 forecast yield and further acquisition of the Crowne Plaza Changi Airport extension at end FY2015 may boost yield, with sporting events and SG50 possibly catalysing the comeback of visitors in the second half," the research house said.
It said OUE Hospitality Trust's distribution per unit fell 4.2 per cent year on year to 1.61 Singapore cents in Q1 2015, catching it by negative surprise as it had expected the acquisition of Crowne Plaza Changi Airport to keep performance stable.
Source:
http://www.businesstimes.com.sg/stocks/brokers-take-oue-hospitality-trust-downgraded-to-hold
Analysts said room rates have come under pressure amid strong competition. According to Singapore Tourism Board’s hotel statistics, standard average room rates across all segments - luxury, upscale, mid-tier and economy - experienced declines of between 1.8 per cent and 8.1 per cent for the first three months of the year.
Mr Derek Tan, vice president for DBS Group Research, said: "New hotels are ramping up, offering good discounts, and you have the incumbents trying to survive and fill their rooms. So although occupancies are still fairly healthy at 85 per cent, rates have been the main dampener because of competition.
“The general trend for hotels this year is largely still going to be fairly challenging and we are expecting a year-on-year decline in revPAR (revenue per available room) of close to 5 per cent. Supply is going to be an issue, and it is going to be a fairly enlarged inventory for the market to digest at one shot."
Source:
http://www.channelnewsasia.com/news/business/singapore/challenging-outlook-for/1887992.html
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