OUE Hospitality Trust - CIMB Research 2017-01-25: 4Q16 in the right direction

OUE HOSPITALITY TRUST SK7.SI

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.

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.

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.

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%.

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.

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

YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2017-01-25

CIMB Research SGX Stock Analyst Report ADD Maintain ADD 0.71 Up 0.700