OUE Hospitality Trust - OCBC Investment 2016-05-09: 1Q16 results in line with expectations

OUE HOSPITALITY TRUST SK7.SI

OUE Hospitality Trust: 1Q16 results in line with expectations

Gross revenue increased 2.8% YoY to S$30.1m, coming up to 21.2% of our full-year forecast.
For FY14 and FY15, 1Q contribution stood at 24.7% and 23.5% respectively.
DPU fell 31.7% to 1.10 S cents, making up 18.9% of our full-year forecast.
Adjusting for the Rights Issue, DPU would have fallen 8.7% to 1.47 S cents.
As the CPCA extension (CPEX) comes on board in the middle of the year, we expect a higher DPU contribution from 2H16.

Hospitality revenue was up 11.5% due to 5.7% higher master lease income from Mandarin Orchard (MOS) and better operating performance as well as a full 3-month contribution from CPCA. The higher income from MOS was partly due to a one-off F&B event.
REVPAR for MOS stayed flat, falling 0.4% to S$222, while that for CPCA inched up 2.4% to S$252 on the back of increased demand from the transient segment, which offset the lower demand from the corporate segment.

Retail revenue suffered a 16.3% decrease due to ~13% of NLA undergoing a landlord fit out period for incoming tenants as well as a lower average occupancy rate.
New tenants Michael Kors and Victoria’s Secret are expected to open in mid-3Q16 and end-4Q16 respectively.
The average rental reversion was -19% for leases signed in 1Q16, which accounted for 5.8% of NLA. This was partly due to a shift in rental structure with a move towards lower fixed rent and higher variable rent to entice tenants.

Average cost of debt now stands at 2.8% vs. 2.7% as at 4Q15 and 2.5% as at 3Q15.
Given the steeper-than-anticipated decline in retail revenue as well as the rate hike environment, we update the parameters of our model.
FY16 DPU is expected to come in at 5.3 S cents, down from 5.8 S cents forecasted previously.
Our fair value estimate drops from S$0.70 to S$0.67. Maintain HOLD.

Deborah Ong OCBC Securities | http://www.ocbcresearch.com/ 2016-05-09

OCBC Securities Analyst Report HOLD Maintain HOLD 0.67 Down 0.70