Friday, November 13, 2015

OUE Hospitality Trust

OUE Hospitality Trust’s 3Q15 results met expectations, as DPU climbed 4.9% y/y to 1.72¢. This brought 9M15 DPU to 4.85¢ (-2.2%) or 74% of full-year consensus estimate.

Gross revenue rose 14.6% to $32.7m, mainly driven by its hospitality segment (+21.8% to $23.3m), as growth for the retail segment (-0.1% to $9.3m) comprising Mandarin Gallery was muted.

The stronger hospitality business was largely due to a $4m contribution from Crowne Plaza Changi Airport Hotel (CPCA), which was acquired in Jan ’15, while Mandarin Orchard Singapore (+0.5% to $19.3m) improved marginally on a slightly higher RevPAR of $243 (+0.8%).

Consequently, NPI was lifted to $28.8m (+13.5%), but distributable income grew at a slower pace to $23m (+5.8%), dragged by higher finance expenses from borrowings used to fund the acquisition of CPCA and fixed rate hedging.

Retail portfolio occupancy inched 0.1ppt q/q to 98% with a weighted-average-lease-to-expiry of 2.9 years.

Aggregate leverage stood at 42.1%, with average debt cost and tenor of 2.5% and 2.7 years respectively. As at Oct ’15, 83% of the trust’s borrowings were hedged on fixed interest rates.

Moving forward, management expects the hospitality sector will continue to face headwinds from excess supply and a tepid tourism industry given the uncertain global economic environment and relatively strong SGD. Nevertheless, OUE-HT will continue to refurbish the remaining 270 out of the 430 Mandarin Orchard rooms in phases throughout 2016.

The retail segment is also expected to remain challenging but management plans to continue leveraging Mandarin Gallery’s position as a high-end mall to attract quality tenants and shoppers. The mall will be adding Michael Kors and Victoria’s Secret to its premium list of tenants in FY16 for seven and 10 years respectively.

OUE-HT currently offers an annualised distribution yield of 8.6% and trades at 0.89x P/B.

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