OUE Hospitality Trust - CGS-CIMB Research 2019-05-02: Waiting On The Merger


OUE Hospitality Trust - Waiting On The Merger

  • OUE HOSPITALITY TRUST (SGX:SK7)'s 1Q19 DPU of 1.18 Scts was in line at 23% of our FY19 forecast. The y-o-y decline was due to a fall in hospitality revenue.
  • MOS’s RevPAR fell 8.9% y-o-y due to lower demand from the corporate and wholesale segments and weaker banquet sales.
  • Maintain our ADD call with a Target Price of S$0.85 pending the completion of the merger with OUE COMMERCIAL REIT (SGX:TS0U).

OUEHT's 1Q19 results in line

  • OUE HOSPITALITY TRUST (SGX:SK7)'s 1Q19 DPU of 1.18 Scts (-6.3% y-o-y, -7.8% q-o-q) was broadly in line at 23% of our FY19 forecast. The decline was mainly due to a fall in hospitality revenues of 4.4% y-o-y driven by a 6.2% y-o-y decline in RevPAR; this was partially offset by an increase in retail revenue from Mandarin Gallery.
  • Interest expense was also higher due to higher cost of debt and the adoption of the new FRS 116 accounting standard for leases.

Mandarin Orchard RevPAR underperforming

  • Mandarin Orchard Singapore (MOS) registered an 8.9% y-o-y RevPAR decline to S$211 from S$232 as a result of lower room revenue due to lower average room rates from slowing demand in the corporate and wholesale segments. The RevPAR decline was also attributed to the absence of biennial events like the Singapore Airshow.
  • F&B sales at MOS was also hit following the suspension of services of the Grand Mandarin Ballroom and its attached kitchen; this was partially offset by compensation received.

Underlying performance of CPCA continues to be encouraging

  • Crowne Plaza Changi Airport (CPCA) continues to receive minimum rent from its master lessee. Underlying operational performance continues to improve with RevPAR growth of 0.5% to S$185 from S$184.
  • As CPCA is connected to the newly-opened Jewel, we think that it will continue to perform well and could even start to receive variable income in FY20F. It needs a RevPAR of S$190 to start receiving variable income.

Stronger performance from Mandarin Gallery

  • Gross revenue from Mandarin Gallery was S$8.5m (+1.0% y-o-y) due to higher average occupancy of 98.4% in 1Q19 (96.0% in 1Q18). Coupled with lower property expenses, the revenue improvement drove NPI 2.5% higher y-o-y.
  • Negative rental reversions in the last 2 quarters was reversed in 1Q19, which had positive rental reversions of +5.8%.
  • In FY19, some 9% of Mandarin Gallery’s net lettable area is up for renewal.

Maintain ADD with an unchanged Target Price of S$0.85

  • We maintain our ADD call and DDM-based Target Price of S$0.85 pending the completion of the merger with OUE Commercial REIT. Unitholders of OUE Hospitality Trust can expect to receive cash of S$0.04075 and 1.3583 new OUE Commercial REIT units for each OUE Hospitality Trust unit owned. The respective EGMs for approvals of the proposed merger are scheduled for Jun 19 while the expected completion is set for Aug 19.

LOCK Mun Yee CGS-CIMB Research | EING Kar Mei CFA CGS-CIMB Research | https://research.itradecimb.com/ 2019-05-02
SGX Stock Analyst Report ADD MAINTAIN ADD 0.850 SAME 0.850