OUE Hospitality Trust - RHB Invest 2016-05-09: 1Q16 Results Flash Note

OUEHT OUE HOSPITALITY TRUST SK7.SI

OUE Hospitality Trust: 1Q16 Results Flash Note

1Q16 DPS declined c.32% YoY, mainly due to rights issued in Mar. Stripping it off, DPS would have fallen c.9% instead.
Its results were supported by its hotels, offset by the weaker earnings from its retail segment.
Hospitality segment: RevPAR was up c.1% YoY.
Retail segment: Ave. occupancy fallen to 83%, mainly due to c.13% of its NLA underwent landlord fitout works.

Management expects retail scene to be challenging, while its hotels are subjected to high uncertainty due to the current global economic environment.
RevPAR for Mandarin Orchard Singapore (MOS) was down 0.4% YoY, mainly due to higher F&B revenue offset by a muted demand for its rooms.
RevPAR for CPCA (Crowne Plaza Changi Airport) was up 2.4% YoY, mainly due stronger demand from the higher tourist arrival figure.
Rental reversion for Mandarin Gallery (MG) was at negative 19%, as a result of adopting higher turnover rent component. The renewed leases make up to 5.8% the NLA.
Its effective rent (psf/mth) remained stable at SGD24.40.
Anchor tenants for MG, Michael Kors and Victoria’s Secret, are expected to open in 2H16. These lease durations are long – seven and ten years respectively.
Gearing ratio stood at 42.2%, and interest coverage of 3.8x.

We still like OUEHT as it proves to be a beneficiary to the higher tourist arrivals. While its retail segment dragged its first quarter performance, we think that it is part of the REIT’s long term strategy.
On the retail front, management has secured long leases with quality tenants such as Michael Kors and Victoria’s Secret. In view of a challenging outlook, it has also structured higher turnover rent component. This, we think would bring more stability to its retail business in the long run.
We have placed the rating and target price under review. In our previous report, our recommendation for OUEHT was a Buy, with a TP of SGD0.86.

Ivan Looi RHB Invest | http://www.rhbinvest.com.sg/ 2016-05-09

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