OUE Hospitality Trust

OUE Hospitality Trust: 1Q15 results were below estimates, with DPU down 4.2% to 1.61¢. Gross revenue came in at $29.3m (+2.1%) with NPI of $25.7m (+0.3%), as the quarter saw maiden contributions from Crowne Plaza Changi Airport (CPCA) which was acquired on 30 Jan ’15.

This was however weighed by weaker operating performance of Mandarin Orchard Singapore (MOS), largely as a result of the absence of the biennial Singapore Airshow in Feb this year and the weaker tourism sentiment which impacted the hospitality demand in 1Q15.

Operationally, hospitality revenue was up 2.8%, a result of the additional $2.7m of master lease income contribution from CPCA which more than offset the decrease of $2.1m income from MOS.

Retail revenue was up 0.7% mainly due to higher rental rates, with Mandarin Gallery shopping mall recording an effective rent psf per month of $24.6 for 1Q15 as compared to $23.6 for 1Q14.
Meanwhile overall other property expenses rose 22.3% to $1.7m, largely due to the acquisition of CPCA.

Leverage ratio stood at 42.1% but mitigated by interest coverage of 5.5x. Average cost of debt was at 2.5% with tenor of 3.2 years. Meanwhile WALE stood at 1.9 years. Mandarin Gallery remains 96% committed.

Looking into 2015, sentiment in the tourism industry may be slightly dented by the uncertain global economic outlook, but this may be mitigated by domestic events as Singapore celebrates its Golden Jubilee year and hosts the 2015 SEA Games and World Rugby Sevens.

The acquisition of CPCA has also increased the REIT’s income and enhanced its diversification, as it reduces the reliance of OUE H-Trust’s income stream on any single property

At the current price, OUE-HT trades at 6.9% annualized 1Q15 yield and 1.04x P/B.

Latest broker ratings:
CIMB downgrade to Hold with TP of $1.01
KGI downgrade to Hold with TP of $0.99 (prev. $1.04)
OCBC maintains Hold with TP of $0.92 (prev. $0.94)