OUE HOSPITALITY TRUST
SK7.SI
A counter worth visiting
- OUE-HT’s results were in line with our expectations, with the quarter and 1H’s DPU accounting for 21% and 44% of our full-year forecasts, respectively.
- With a more positive 2H outlook, coupled with the recent 9.7% share price correction, we have upgraded our rating to Add from Hold.
- Our DDM-based target price is slightly lowered to S$0.98 as we cut our FY15-17 DPU forecasts by 4.8-4.0% to reflect a more challenging hospitality market.
Results in line with expectations
- OUE Hospitality Trust’s (OUE-HT) 2Q15 distributable income and DPU dipped by 6.6% yoy and 7.3% yoy, respectively, on the back of a weak operating performance by Mandarin Orchard (MOS).
- However, this weakness was mitigated by the additional S$3.7m of master lease income contribution from Crowne Plaza@Changi Airport (CPCA).
- For 2Q15, MOS recorded a lower RevPAR of S$218 (-9.9% yoy) on the back of a weak tourism market.
- Mandarin Gallery (MG) similarly contributed slightly lower earnings as a result of lower occupancy (97% vs. 99.7% in 2Q14) and fit out periods for some of the lease renewals, while it reported a higher average passing rent of S$24.2 psf/mth (vs. S$23.7 psf/mth in 2Q14).
Stronger 2H expected
- In 2Q, unlike some of its peers, MOS was not appointed to provide accommodation for the SEA games entourages.
- Based on our estimates, ADR for MOS dipped by c.8.9% yoy, while occupancy remained largely stable at 89% (-c.1% yoy).
- For 2H15, we expect OUE-HT to benefit from the additional income contribution from CPCA, while the management guided for stronger Jul and Aug. In terms of MG, given its location and ongoing demand for prime Orchard Road space, we believe positive rental reversion in the mid-teens could be achieved for the remaining 26% (by gross rent) of leases due later this year.
Upgrade to Add
- Despite the near-term overhang from the potential dilution for the funding of the upcoming CPEx acquisition (we have factored in a S$110m dilution), we upgrade OUE-HT to an Add rating on the back of a stronger 2H outlook and a 9.7% correction in the share price since May 15.
- Currently offering FY15/16 dividend yields of 7.6%/8.1%, OUEHT is one of the highest yielding REITs in Singapore.
PANG Ti Wee | LOCK Mun Yee | TAN Xuan CFA | http://research.itradecimb.com/ CIMB Securities 2015-08-14
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