Results Review, 4 November 2014 OUE Hospitality Trust (OUEHT SP) Neutral Property - REITS Market Cap: USD930m Target Price: Price: SGD0.94 SGD0.91 Macro Risks Potential Competition From Hotel Jen Growth Value OUE Hospitality Trust (OUEHT SP) Price Close Relative to Straits Times Index (RHS) 0.96 108 0.94 106 0.92 105 0.90 103 0.88 101 0.86 99 0.84 98 0.82 96 0.80 25 94 0 0 .2 0 0 We assume coverage on OUEHT with a NEUTRAL rating and a TP of . 0 SGD0.94 (CoE: 8.0%, TG: 1.5%), implying a total return of 9.0%. 0 OUEHT’s 3Q14/9M14 DPU of 1.64/4.96 cents was in line with our 0 estimates. We remain cautious on the impending headwinds facing the tourism industry. We see the new opening of Hotel Jen Orchardgateway (formerly Traders Hotel) as a potential competitor to Mandarin Orchard Singapore.  20  15 Sep-14 Jul-14 May-14 Mar-14 Jan-14 5 Nov-13 Vol m 10 Source: Bloomberg Avg Turnover (SGD/USD) 1.14m/0.91m Cons. Upside (%) 4.4 Upside (%) 3.9 52-wk Price low/high (SGD)  0.83 - 0.94 Free float (%) 57 Share outstanding (m) 1,319 Shareholders (%) OUE Realty Pte Ltd 40.5 Golden Concord Asia Ltd 1.5 Hennessy Holdings Ltd 1.3 Share Performance (%) Absolute Relative  9M14 results in line at 73.4% of our forecast. OUE Hospitality Trust (OUEHT) posted a 0.3% YoY increase in 3Q14 DPU to 1.64 cents, underpinned by stronger hotel operating performance by Mandarin Orchard Singapore (MOS). Revenue per available room (RevPAR) for Mandarin Orchard Singapore (MOS) in 3Q14 inched up to SGD252 (3Q13: SGD249) as management continues to target corporate customers, shifting away from its less profitable wholesale customers. Newly-launched Hotel Jen Orchardgateway could potentially affect DPU in FY15. The 502-room Hotel Jen Orchardgateway (approximately 380m away from MOS), opened on 15 Sep with an introductory room rate of SGD250 per night. The opening of Hotel Jen is likely to have a direct impact on MOS’ RevPAR in the near term, pressuring MOS to lower its room rates to maintain its current occupancy level. In addition, the ongoing refurbishment of MOS (current: 160/430 rooms), which is scheduled to be completed by end-2015, will continue to impact the hotel’s performance. Mandarin Gallery (MG) continues to provide resilient income. Occupancy in the upscale shopping mall MG remained unchanged at 99.7%, with an effective rent at SGD23.90 psf/month (3Q14: SGD23.70 psf/month). Two leases, accounting for 2.4% of total net lettable area (NLA) were renewed in 3Q14, with a weighted average rental reversion of 4.7% (2Q14: +33.0%). We see a potential upside to rental reversion in FY15 as 44% of its gross rent will expire next year. Assume coverage with NEUTRAL. We remain cautious on the unfavourable demand and supply dynamics of the tourism industry. We assume coverage on OUEHT with a NEUTRAL recommendation and a TP of SGD0.94, with a FY15F yield of 6.8%. YTD 1m 3m 6m 12m 3.4 (0.6) 1.1 4.0 2.8 Forecasts and Valuations Dec-13 Dec-14F Dec-15F Dec-16F 2.7 Total turnover (SGDm) 51 117 114 122 Net property income (SGDm) 45 103 100 108 Reported net profit (SGDm) 76.1 86.1 83.6 90.4 Total distributable income (SGDm) 38.2 90.1 83.2 90.2 DPS (SGD) 0.03 0.07 0.06 0.07 DPS growth (%) nm 134.0 (8.4) 7.5 Recurring P/E (x) 15.6 13.8 14.4 13.4 P/B (x) 1.3 0.7 4.7 4.9 Shariah compliant Ivan Looi +65 6232 3841 ivan.looi@sg.oskgroup.com   2  . 2 0 . 2     0.98 0.97 0.97 0.96 Singapore Research +65 6232 3845 Dividend Yield (%) 3.2 7.5 6.8 7.4 research@sg.oskgroup.com Return on average equity (%) 6.6 7.1 6.8 7.2 Return on average assets (%) 4.3 4.7 4.5 4.8 4.01 6.37 6.20 6.68 0.0 0.0 0.0 Interest coverage ratio (x) Our vs consensus EPS (adjusted) (%) Source: Company data, OSK-DMG See important disclosures at the end of this report Powered by EFA TM Platform 1 OUE Hospitality Trust (OUEHT SP) 4 November 2014 Results Review Figure 1: OUEHT's 3Q14 results summary 3Q13 (25 Jul-30 Sep) 2Q14 3Q14 %QoQ %YoY Comment Gross revenue 21.6 28.3 28.5 0.8 31.8 Increased YoY due to a shorter financial period in 3Q13. Operating expenses (2.4) (3.1) (3.2) (0.3) (0.2) NPI 19.3 25.2 25.4 0.5 31.5 REIT mgr's base mgmt fees (1.0) (1.3) (1.4) 1.1 33.6 REIT mgr's performance fees (0.8) (1.0) (1.0) 0.5 31.7 REIT trustee's fees (0.1) (0.1) (0.1) 20.6 60.8 Other trust expenses (0.3) (0.4) (0.4) (1.4) 45.0 Net income before financing cost & tax 17.2 22.4 22.5 0.4 31.1 Interest income 0.0 0.4 0.3 (24.1) nm Borrowing costs (6.6) (3.7) (3.7) 1.0 (44.0) EBT 10.6 19.2 19.1 (0.2) 81.1 0.0 0.0 0.0 nm nm Gains from revaluation 51.0 0.0 0.0 nm nm Gains from derivatives 0.0 0.0 0.0 nm nm Total return before tax 61.6 19.2 19.1 (0.2) (68.9) (SGD m) Gains from property divestments Tax 0.0 0.0 0.0 nm nm 61.6 19.2 19.1 (0.2) (68.9) Total return (ex exceptionals) 10.6 19.2 19.1 (0.2) 81.1 Add-back: Non tax deductibles (45.3) 2.5 2.6 6.1 nm Income available for unitholders 16.3 21.6 21.7 0.5 33.6 Distributable income - unitholders 16.3 21.6 21.7 0.5 33.6 Number of units (end of period) ('m) 1,311 1,319 1,321 0.2 0.8 DPU (SGD-cts) 1.24 1.64 1.64 0.0 0.3 DPU (SGD-cts) (excl. inc. retained) 1.24 1.64 1.64 0.0 0.3 Unitholders funds per share (SGD) 0.91 0.90 0.90 0.0 (1.1) Payout ratio (%) 100.0 100.0 100.0 0.0 ppt 0.0 ppt NPI margins (%) 89.1 89.2 88.9 (0.2) ppt (0.2) ppt Total return - reported Increased YoY due to a shorter financial period in 3Q13. NPI margins for both quarters maintained at 89%. Lower YoY due to the changes in the fair value of the ineffective portion of the cash flow hedge. Increased due to a higher NPI and lower net finance expense. Source: Company data, OSK-DMG See important disclosures at the end of this report 2 OUE Hospitality Trust (OUEHT SP) 4 November 2014 Figure 2: OUEHT's 9M14 results summary (SGDm) 9M14 DMG FY14F % of FY14F Gross revenue 85.5 116.6 73.4 Operating expenses (9.3) (13.6) 68.5 NPI 76.2 103.0 74.0 REIT mgr's base mgmt fees (4.1) (5.5) 73.0 REIT mgr's performance fees (3.0) (4.1) 74.0 REIT trustee's fees (0.2) (0.3) 78.6 Other trust expenses (1.1) 0.0 nm Net income before financing cost & tax 67.8 93.0 72.9 Interest income 1.1 0.0 nm Borrowing costs (11.0) (14.6) 75.5 EBT 57.9 78.5 73.8 Gains from property divestments 0.0 0.0 nm Gains from revaluation 0.0 17.6 nm Gains from derivatives 0.0 0.0 nm Total return before tax 57.9 96.0 60.3 Tax 0.0 0.0 nm Total return - reported 57.9 96.0 60.3 Total return (ex exceptionals) 57.9 78.5 73.8 7.5 (5.9) nm 65.4 90.1 72.6 Add-back: Non tax deductibles Income available for unitholders Distributable income - unitholders 65.4 90.1 72.6 Number of units (end of period) ('m) 1,321 1,321 100.0 DPU (SGD-cts) 4.96 6.82 72.7 DPU (SGD-cts) (excl. inc. retained) 4.96 6.82 72.7 Unitholders funds per share (SGD) 0.90 0.93 96.8 Source: Company data, OSK-DMG Figure 3: OUEHT's TP based on dividend discount model FY13 DPU (SGD cts) 2.90 Fair value (SGD) 0.94 Current price (SGD) FY14E FY15E FY16E FY17E FY18E FY19E FY20E 6.82 6.25 6.72 6.83 6.93 7.01 7.08 Terminal value 98.72 0.915 Price upside (%) 2.2 Distribution yield (%) 6.8 Total return (%) 9.0 Assumptions Risk-free rate (%) 2.5 Beta 1.0 Cost of equity (%) 8.0 Terminal growth (%) 1.50 Source: OSK-DMG See important disclosures at the end of this report 3 OUE Hospitality Trust (OUEHT SP) 4 November 2014 Financial Exhibits Profit & Loss (SGDm) Dec-13 Dec-14F Dec-15F Dec-16F Total turnover 51 117 114 122 Property operating expenses (6) (14) (14) (14) Net property income 45 103 100 108 Management fees (4) (10) (10) (10) Trust expenses (0) (0) (0) (0) Operating EBIT 41 93 90 97 Operating EBITDA 41 93 90 97 Net income from investments 51 18 18 18 Other recurring income (5) (10) (10) (10) Interest income 0 0 0 0 Interest expense (10) (15) (15) (15) Pre-tax profit 76 86 84 90 Profit after tax & minorities 76 86 84 90 Reported net profit 76 86 84 90 (38) 4 (0) (0) 38 90 83 90 Dec-13 Dec-14F Dec-15F Dec-16F 41 93 90 97 9 11 0 (0) Other operating cash flow (7) (5) (5) (5) Operating cash flow 43 99 86 93 Adjustment for distributable income Total distributable income Source: Company data, OSK-DMG Cash flow (SGDm) Operating profit Change in working capital Interest received (0) (0) (0) (0) Interest paid 10 15 15 15 53 114 100 107 - - - Cash flow from operations Other new investments (1,149) Other investing cash flow 0 0 (1,149) 0 0 0 Dividends paid - (90) (83) (90) Proceeds from issue of shares 600 - - - Increase in debt 587 - - - Other financing cash flow (31) (19) (13) (13) 1,156 (109) (96) (103) - 69 Cash flow from investing activities Cash flow from financing activities Cash at beginning of period 0 0 61 65 Total cash generated 61 4 4 4 Implied cash at end of period 61 65 69 74 Source: Company data, OSK-DMG See important disclosures at the end of this report 4 OUE Hospitality Trust (OUEHT SP) 4 November 2014 Financial Exhibits Balance Sheet (SGDm) Dec-13 Dec-14F Dec-15F Dec-16F Total cash and equivalents 61 65 69 74 Accounts receivable 17 10 9 10 1 1 1 78 75 79 84 Total investments 1,756 1,774 1,791 1,809 Total non-current assets 1,756 1,774 1,791 1,809 Total assets 1,834 1,849 1,871 1,893 Accounts payable 8 11 11 12 Other current liabilities 1 1 1 1 Total current liabilities 9 12 12 13 581 583 585 586 32 26 26 26 613 610 611 613 Other current assets Total current assets Total long-term debt Other liabilities Total non-current liabilities Total liabilities - 623 622 623 625 Share capital 1,212 1,227 1,247 1,268 Shareholders' equity 1,212 1,227 1,247 1,268 Total equity 1,212 1,227 1,247 1,268 Total liabilities & equity 1,834 1,849 1,871 1,893 Source: Company data, OSK-DMG Key Ratios (SGD) Dec-13 Dec-14F Dec-15F Dec-16F Revenue growth (%) nm 130.3 (2.1) 6.9 Net profit growth (%) nm 13.1 (2.9) 8.1 EPS growth (%) nm 12.6 (3.6) 7.3 Bv per share growth (%) nm 0.5 0.8 0.8 Net profit margin (%) nm 73.9 73.3 74.1 Return on average assets (%) 4.3 4.7 4.5 4.8 Return on average equity (%) 6.6 7.1 6.8 7.2 Net debt to equity (%) 43.0 42.2 41.3 40.4 DPS 0.03 0.07 0.06 0.07 Recurrent cash flow per share 0.04 0.09 0.08 0.08 Source: Company data, OSK-DMG See important disclosures at the end of this report 5 OUE Hospitality Trust (OUEHT SP) 4 November 2014 SWOT Analysis  Backed by a reputable and long-established sponsor (OUE)  New opening of Hotel Jen Orchardgateway  Strategically-located assets  One-off events that may crimp hospitality sector growth such as SARS, Ebola and financial crisis  Fixed rent helps to reduce revenue risks  Rising number of medical tourists given its presence in the Orchard Road medical cluster  Increased meetings, incentives, conferences and exhibitions (MICE) travellers given Singapore’s growing profile as a global MICE destination of choice  Increased patronage from corporate and transient customers  Highly dependent on tourist money  Short remaining land lease  Income and asset concentration risks P/E (x) vs EPS growth P/BV (x) vs ROAE 15 7% 1 7% 14 4% 1 7% 14 2% 1 7% 13 -1% 1 7% 13 -4% 1 7% 12 -6% 1 7% P/E (x) (lhs) EPS growth (rhs) Source: Company data, OSK-DMG P/B (x) (lhs) Jan-16 7% Jan-15 1 Jan-14 9% Jan-13 7% 15 Jan-12 1 Jan-16 12% Jan-15 7% 16 Jan-14 1 Jan-13 14% Jan-12 16 Return on average equity (rhs) Source: Company data, OSK-DMG Company Profile OUEHT is a stapled group comprising H-REIT and HBT. H-REIT is a real estate investment trust that directly or indirectly invests in a portfolio of income-producing real estate which is used primarily for hospitality and/or hospitality-related purposes, while HBT is a business trust. See important disclosures at the end of this report 6 OUE Hospitality Trust (OUEHT SP) 4 November 2014 Recommendation Chart Price Close 0.96 0.94 0.92 0.90 0.88 0.86 0.84 0.82 0.80 Jul-13 Nov-13 Apr-14 Aug-14 Source: OSK-DMG, Bloomberg See important disclosures at the end of this report 7 RHB Guide to Investment Ratings DMG & Partners Research Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share may10% exceed over 12 themonths next 3 months, however longer-term outlook remains uncertain Buy: Share price mayprice exceed over15% the next Neutral: Buy: ShareShare price price may fall within the 15% rangeover of +/the next 12 months Trading may exceed the10% nextover 3 months, however longer-term outlook remains uncertain Take Profit: Target been attained. accumulate lower Neutral: Share priceprice may has fall within the rangeLook of +/-to10% over theatnext 12 levels months Sell: Share may fall has by more 10% over next 12 months Take Profit:price Target price beenthan attained. 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