OUE Hospitality Trust - 4Q16 in the right direction
- FY16 DPU of 6.07 Scts (-24% yoy) was slightly ahead of consensus and our expectations, forming 104% of our forecast. 4Q16 was at 31% of full-year forecast.
- Hospitality boosted by enlarged Crowne Plaza Changi Airport (CPCA); Mandarin Orchard Singapore’s (MOS) 4Q16 RevPAR down 6.8% yoy to S$200 (in line with industry-wide trend).
- Retail revenue down 4.8% yoy but up 2.7% qoq.
- Maintain Add with a slightly higher DDM-TP. Underpinned by full-year contribution of MK and VS, as well as enlarged CPCA, we continue to favour OUEHT.
4Q16 results summary
- OUEHT’s results continue to underscore our investment case that things are moving in the right direction. The group achieved a distributable income of S$24m for 4Q16, up 5.3% yoy.
- The increase came from higher contribution from the enlarged Crowne Plaza Changi Airport (CPCA), partially offset by lower contribution from the retail segment, after straight-line adjustment.
- The group achieved 4Q16 DPU of 1.36 Scts (-13.9% yoy), forming 31% of our full-year forecast. The yoy decline is due to the rights issue in Apr.
Hospitality boosted by enlarged CPCA Hospitality
- NPI grew by 1.4% yoy due to contribution from the enlarged CPCA. In addition to the master lease income, the group received income support of S$1.6m for the quarter.
- In our previous analysis, the S$7.5m income support was adequate in our base-case scenario. We understand that occupancy for CPCA in 4Q16 was in the low to mid-60s, while ADR was S$210-220.
MOS 4Q16 RevPAR down 6.8% yoy to S$220
- In line with the quarterly and industry-wide trend, Mandarin Orchard Singapore’s (MOS) 4Q16 RevPAR decreased 6.8% yoy to S$220. With supply pressures continuing in 1H17, we do not expect a meaningful recovery in RevPAR in 2017.
- One bright spot, though, was higher F&B sales. For 4Q16 RevPAR breakdown, MOS ADR was around S$250 while occupancy was c.90%.
Retail revenue down 4.8% yoy but up 2.7% qoq
- Due to lower occupancy at 94.1% (4Q15: 94.8%) and lower rental rates, retail revenue was down 4.38% yoy. However, revenue was up 2.7% qoq as Michael Kors (MK) and Victoria’s Secret (VS) began operations in 3Q16 and 4Q16, respectively. As a result, average occupancy for Mandarin Gallery (MG) rose from 89% in 3Q16 to 94.1% in 4Q16.
- For FY16, MG recorded -20% rental reversion. Our projections reflect continued headwinds and improvement is mainly driven by the full-year effect of MK and VS.
Fair value loss of S$52.9m on investment properties
- We note that OUEHT booked a S$52.9m fair value loss on investment properties due to a S$13m decline in fair value of MOS and S$42.1m decline in MG, partially offset by an increase of S$2.2m gain in the enlarged CPCA.
- We continue to favour OUEHT as we project 5.8% yoy DPU growth, underpinned by full-year contributions of MK and VS as well as the enlarged CPCA.
- The stock is not without risk, but we feel that our projections have reflected the continued retail headwinds and weakness from MOS.
- Maintain Add with a slightly higher DDM target price (S$0.71).
- We raise our FY17 and FY18F DPU by 0.3% on lower finance cost assumptions.
- We also introduce our FY19F forecasts. OUEHT trades at 0.9x CY16 P/BV and 7.1% CY17 yield