Thursday, July 18, 2013

OUE Hospitality Trust

Short Summary:
OUE Hospitality Trust is a stapled group comprising OUE H-REIT and OUE H-BT. OUE H-BT will be dormant as at the Listing Date. OUE H-REIT is established with the principal investment strategy of investing, directly or indirectly, in a portfolio of income-producing real estate which is used primarily for hospitality and/or hospitality-related purposes, whether wholly or partially, as well as real estate-related assets. OUE H-REIT’s initial asset portfolio is strategically located in the heart of Singapore’s renowned shopping district of Orchard Road, and comprises Mandarin Orchard Singapore and Mandarin Gallery.
The Deal:
Offering Price: S$0.88
The Offering: 434,598,000 Shares (Include 51,136,000 Offering Shares to Singapore Public)
Cornerstone Investors: 247,220,000 Cornerstone Shares
Forecast Dividend Yield:
2013: 7.36%
2014: 7.46%
*Based on issue price of $0.88, 1,308,600,000 units after IPO.
Dividend Policy:
Distributions from OUE H-REIT are computed based on 100.0% of the OUE H-REIT’s Taxable Income for Forecast Period 2013 and Projection Year 2014 and at least 90.0% of its Taxable Income thereafter on a quarterly basis to the Stapled Security holders.
-Opportunity to invest in a portfolio of premier assets which are strategically located in the heart of Singapore's renowned shopping district of Orchard Road.
-Beneficiary of Singapore's economic, tourism, hospitality and robust retail sector growth.
-Stable distributions with downside protection via long term master lease agreement.
-Strong Acquisition Pipeline - Crowne Plaza Changi Airport / 100%, Meritus Mandarin Haikou / 100%, Meritus Shantou China / 80%.
-Sponsor to hold at least 42.7% of the trust post IPO. There is alignment of interest between sponsor and unit holders.
-The hospitality and hospitality-related industries are susceptible to cyclicality and other factors outside the control of OUE H-Trust and the Managers.
-The hospitality industry is highly competitive and the performance of OUE H-Trust may be affected by increasing supply of hospitality assets in Singapore.
-Downturns in the retail industry will likely have a direct impact on OUE H-Trust’s revenues and cash flow.
-OUE H-Trust is reliant on Mandarin Orchard Singapore for a substantial portion of its Gross Revenue.
-Renovation work, repair and maintenance or physical damage to Mandarin Orchard Singapore may disrupt the operations of OUE H-REIT.
-High Gearing of 33.77%
In my opinion, this IPO is worth a try given its decent 7+% yield. Given that the tourism sector in Singapore will continue to grow in the foreseeable future, the trust looks set to achieve its forecast yield rate. However, as the trust depends on Mandarin Orchard for a substantial portion of its Gross Revenue, if anything do happens (Eg: Haze, SARS, financial crisis) and tourists starts avoiding Singapore, the performance of the trust will be severely impacted. For me, I personally do not like trusts dealing with hotel as I see them as a high risk item. Finally, this trust has a good and strong acquisition pipeline, so unit holders are rest assured that this trust will likely grow in value with time. In summary, I personally will not be applying for this IPO, but given its decent yield and strong acquisition pipeline, this IPO is worth a try.
Some useful information:
[18 Jul 2013], [6.00 p.m.] : Opening date and time for the Public Offer.
[23 Jul 2013], [12.00 noon] : Closing date and time for the Public Offer.
[24 Jul 2013]: Balloting of applications under the Public Offer, if necessary.
[25 Jul 2013], [2.00 p.m.]: Commence trading on a “ready” basis.
Rating for investment: 6/10

Disclaimer: You may use the above information as a guide, but please invest based on your own judgment.

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