OUE Hospitality Trust - RHB Invest 2016-01-27: So What If There Are More Tourists?

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OUE HOSPITALITY TRUST SK7.SI 

OUE Hospitality Trust (OUEHT SP) - So What If There Are More Tourists? 

• OUEHT’s 4Q15/FY15 results were weak, dragged by its hotels. 
• Despite an increase in total tourist arrivals (11M15: +0.4% YoY), we note that RevPAR did not benefit from it. 
• In our view, this was due OUEHT’s high reliance on Indonesian tourist arrivals, which had dropped. 
• Maintain SELL with a lower SGD0.67 TP (from SGD0.73, 10% downside), as we adjust our DPS estimates downwards, implying FY15 P/BV of 0.74x. 

 4Q15/FY15 results within our expectations; dragged by its hotels. 

• OUE Hospitality Trust (OUEHT) posted a DPS decline of 4.5%/2.8% YoY in 4Q15/FY15, accounting for c.103% of our full-year estimate. This was underpinned by a c.2.0% YoY decline in its distributable income for the full year, mainly due to lower contributions from Mandarin Orchard Singapore (MOS) and Mandarin Gallery (MG). 
• Its gearing ratio remained one of the highest in the S-REITs sector at 42.0%, with c.33% of its total borrowings expiring this year. 

 RevPAR under pressure on lower Indonesian tourist arrivals in Singapore. 

• Despite higher total tourist arrivals in Oct and Nov 2015, OUEHT’s average revenue per available room (RevPAR) for the quarter was down c.3.0% YoY, mainly dragged by lower room sales in MOS. 
• As highlighted in our previous note, OUEHT’s hotel portfolio is heavily exposed to Indonesian tourist arrivals (11M15: c.-11% YoY), which was likely reflected in the fall in RevPAR. 
• Moving forward, we think that the trust’s RevPAR performance would remain under pressure, in addition to a supply glut of hotel rooms. 

 MG remains healthy with positive rental reversion. 

• Occupancy rates in MG remain stable at c.94%, achieving c.2.4% positive rental reversion. 
• In the last quarter, the trust inked new long leases (up to 10 years) with Michael Kors and Victoria’s Secret, which should help anchor the mall’s income stability in the long term. 

 Maintain SELL with a lower TP of SGD0.67. 

• We reduce our FY16/FY17 DPS forecasts by -4.4/6.5% respectively, in view of a challenging hospitality market as the unfavourable supply-demand dynamics continue to persist further. 
• An unexpected surge in Indonesian tourist arrivals may provide upside risk to our TP.

Ivan Looi RHB Invest | http://www.rhbinvest.com.sg/ 2016-01-27

RHB Invest SGX Stock Analyst Report SELL MAINTAIN SELL 0.67 Down 0.73