OUEHT

OUEHT: OUE Hospitality Trust’s 4Q15 results were broadly in line with DPU of 1.7¢ (-4.5%) and distributable income of $22.8m (-3.3%) dampened by higher funding cost arising from the acquisition of Crowne Plaza Changi.

Revenue and NPI rose 8.6% and 7% to $33m and $28.8m respectively, boosted by the addition of Crowne Plaza Changi, but were offset by weaker performance at Mandarin Orchard and Mandarin Gallery.

Master lease income at Mandarin Orchard came in $1.1m lower as RevPAR fell to $236 (3Q15: $243, 4Q14:$245), amid a decline in transient business. Meanwhile, revenue at Mandarin Gallery fell 3.2% to $9.2m due to lower occupancy and fit-out periods. Effective monthly rent climbed to $24.70 psf from $23.70 psf last year.

Committed occupancy at Mandarin Gallery was 94%, with weighted lease expiry of 3 years.

Aggregate leverage stood at 42% (-0.1ppt q/q) with average cost of debt of 2.7% (+20bps).

Management expects the tourism industry in Singapore to remain difficult in 2016, notwithstanding major biennial events such as the Singapore Airshow, as well as Singapore’s maiden hosting of the World Rugby Sevens Series in Apr ’16.

OUEHT expects to acquire the 243-room Crowne Plaza Changi extension in 2H16, upon receipt of TOP. Given its current leverage near the 45% threshold, the trust is likely to fund the acquisition via equity raising exercise.

The AEI at Mandarin Orchard will continue into 2016, with the remaining 270 of 430 guest rooms to be renovated in phases, and funded by sponsor OUE.

As Mandarin Gallery’s lease renewal cycle coincides with a challenging retail environment, management guided that tenants have taken a more cautious approach to lease renewals. With the impact of slower lease renewals and more fit-out extensions, Mandarin Gallery is expected to record lower occupancy in 1H16.

OUEHT is currently trading at an annualised DPU yield of 9.1% and 0.8x P/B.

While Market Insight likes OUEHT's assets from a longer term perspective, as well as its above average yield, the weak macro and transitional factors, as well as equity fund raising risk may result in a prolonged overhang, amid a market with little appetite for risk.

As such, we are exiting our position from the Yield portfolio with a realised loss of 1.3% ytd from $0.77 at the start of the year.

Latest broker ratings:
Credit Suisse maintains Neutral but cuts TP to $0.92 from $0.94
Religare maintains Buy with TP of $0.87
Deutche maintains Hold with TP of $0.80