OUE-HT

OUE-HT: which holds the prized assets Mandarin Orchard (hotel) and Mandarin Gallery (retail), reported 4Q distributable income (+7.5% y/y) of $23.6m and DPU of 1.78¢ (+6.6%), largely in line with its IPO forecast. FY2014 DPU of 6.74¢ yields 7.2%. Higher revenue ($30.4m, +4.8%) and net property income ($27.0m, +5.5%) in 4Q were in line with guidance, driven by both the hotel ($20.9m, +4.5%) and retail ($9.5m, +5.4%) segments. In hospitality, occupancy and room rates were higher, leading to higher RevPAR ($255, +1.2% q/q and +2.4% y/y) and F&B sales. In retail, rental reversion is positive. Average rental rates at $23.60psf/month were higher y/y (+2.2%) but dipped q/q (-1.3%) due marginal decrease in occupancy (4Q14 98.2% vs 3Q14 98.2%). As of January 2015, Mandarin Gallery is fully committed for occupation. Post asset enhancement, Mandarin Gallery also added outdoor advertising space which contributed new income. Balance sheet changes from Sep14 to Dec14 are minimal. Aggregate leverage and cost of debt remained at 32.7% and 2.2% respectively, with interest rate risks completely hedged. Without any changes to debt profile, the term to maturity has been reduced to 2.6 years and the first refinancing requirement comes in Jul16. Despite the satisfactory results and strong balance sheet, the outlook for OUE-HT may be muted. Firstly, the tourism and retail outlook for FY2015 is uncertain, given China’s slowing economy, and is highly susceptible to regional events. Secondly, the completion of Crowne Plaza Changi Airport acquisition in Feb15 may push leverage up to 42% if fully debt-funded, and lower RevPAR ($241), increase in property expenses as well as finance expenses will weigh on margins, though DPU is still expected to be accretive. Among peers, OUE-HT has the highest current yield and above-average P/BV of 1.04x. But trading at 52-week high now, upside may be limited. Latest broker reports: OCBC maintains Hold with TP of $0.85 Goldman Sachs maintains Sell with TP of $0.87