OUE Hospitality Trust - OCBC Investment 2017-05-05: 1Q17 DPU jumps 18.2% YoY

OUE Hospitality Trust - OCBC Investment 2017-05-05: 1Q17 DPU jumps 18.2% YoY OUE HOSPITALITY TRUST SK7.SI

OUE Hospitality Trust - 1Q17 DPU jumps 18.2% YoY

  • MG occupancy up 11.8 ppt YoY.
  • Catalysts in progress.
  • BUY with S$0.75 FV.

Double-digit growth in 1Q17 DPU 

  • OUE Hospitality Trust’s (OUEHT) results were in line with expectations. 1Q17 revenue increased 6.4% to S$32.1m, or 24.9% of our full-year forecast. 
  • NPI increased 4.3% to S$27.4m. DPU increased 18.2% to 1.30 S cents, or 25.0% of our full-year forecast – we deem these results were in line with expectations.

Benefiting from greater occupancy at MG and enlarged CPCA 

  • Much of the increase in OUEHT’s NPI came from Mandarin Gallery (MG); retail NPI increased 17.6% YoY to S$6.4m while hospitality NPI increased 0.9% YoY to S$21.0m. 
  • We note that the average occupancy rate at MG is 94.7%, up 11.8 ppt from 1Q16. This more than compensated for the 2.8% lower effective rent of S$23.7 psf per month. 
  • Additional master lease income of S$1.6m from CPCA offset the S$0.6m lower contribution from Mandarin Orchard Singapore (MOS). 
  • We note that MOS’s 1Q17 RevPAR dropped 2.3% YoY to $217, due to lower rates despite the higher occupancy. 
  • As a comparison, CDLHT’s RevPAR for its Singapore hotels dropped 0.8% YoY in 1Q17. MOS’s lower room sales were partially compensated by higher F&B revenue.

Catalysts still intact; re-iterate BUY 

  • As we noted in other reports recently, we expect a significant supply injection in 2Q17 with ~2.8k rooms expected to come on-stream. In contrast, the hotel room supply is estimated to have increased by only ~130 rooms in 1Q17. 
  • Despite these headwinds, we remain optimistic on OUEHT given the positive contributions from the recovery in contributions from Mandarin Gallery and the stabilizing effect of the enlarged CPCA.
  • In addition, we note that the renovation of 430 rooms of MOS has completed and expect this to help OUEHT command better rates. 
  • In the medium-term (two to four years), we look forward to increased traffic after the opening of Terminal 4 in 2H17. 
  • OUEHT’s average cost of debt in 1Q17 was 2.5% while gearing as at 31 Mar 2017 was 38.1%. 
  • Our fair value remains at S$0.75. OUEHT is currently trading at 6.9% FY17F yield. 
  • We maintain BUY on OUEHT with a fair value of S$0.75.

Deborah Ong OCBC Investment | http://www.ocbcresearch.com/ 2017-05-05
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 0.750 Same 0.750