SINGAPORE (Jan 31): OUE Hospitality Trust (OUEHT) on Tuesday saw a 6.6% drop in 4Q17 distribution per stapled security (DPS) to 1.27 cents from 1.36 cents a year ago.
This brings DPS for the full year to a record 5.14 cents, 11.5% higher than DPS of 4.61 cents a year ago.
The lower DPS during the quarter was attributed to the absence in income support for Crowne Plaza Changi Airport (CPCA) and higher interest expense, but partially offset by higher income received from hospitality and retail segments.
Gross revenue came in at $33.8 million, 1.8% higher than $33.2 million last year, mainly due to higher revenue from its hospitality segment, which includes master lease income from CPCA and Mandarin Orchard Singapore (MOS).
See: OUE Hospitality Trust posts 6.6% drop in 4Q DPS to 1.27 cents on absence of income support, higher interest expense
Following this announcement, RHB is maintaining its “buy” call on the trust with a target price of 95 cents.
OUEHT’s two hotels – Mandarin Orchard Singapore and CPCA – have registered better performance metrics on the back of improving sector outlook.
In a Wednesday report, analyst Vijay Natarajan says, “With supply tapering and demand factors in place, 2018 looks to be a promising year for the hospitality sector.”
On the retail end, the sector seems to be more resilient than expected, with Mandarin Gallery’s (MG) occupancy rate rising and rental reversions for leases a positive surprise.
The trust’s sponsors have recently completed Oakwood Premier OUE Singapore, a serviced residences that currently has a 60% occupancy rate.
The analyst believes that this could be a potential acquisition target by year-end if its performance stabilises.
“With its gearing on the high side, ie. 38.8% (maximum allowable limit: 45%), we expect future acquisitions to be made via a combination of equity and debt,” says Natarajan.
Similarly, DBS is keeping its “buy” call with an increased target price of 93 cents.
In a Wednesday report, analyst Mervin Song says, “OUEHT’s share price has rallied by over 30% since early 2017 on the back of a recovery in DPU as we had expected but we believe the rally is not over.”
The analyst believes that investor interest in the trust should continue to increase as the recovery in Singapore hospitality market in 2018 gains momentum and revenue per available room (RevPAR) at MOS is still depressed at $225 versus during peak period at over $250.
This should in turn drive OUEHT’s share price up.
“With OUEHT’s distribution yield compressing over the past year from levels which we believe were unjustifiably too high in the first place, OUEHT is now in a strong position to pursue DPU accretive acquisitions,” says Song.
The trust is also seeking opportunities for acquisitions in Europe and Japan.
CIMB is also maintaining its “add” rating on the trust with a target price of 92 cents.
MOS registered the third consecutive RevPAR improvement for the quarter.
In a Thursday report, analyst Yeo Zhi Bin says, “For FY18F, we expect MOS to continue to outperform and achieve 5% gain in RevPAR to S$235 (mainly led by increase in average room rate).”
The analyst also anticipates higher contributions from both MOS and CPCA, as well as a relatively more stable MG, while lower finance expenses would help the trust more than offset the absence of income support in FY18.
However, OCBC is reiterating its “hold” call on OUEHT with an estimate fair value of 84 cents.
In a Wednesday report, analyst Deborah Ong says, “The ramp-up at CPCA is proceeding well, with RevPAR up 32% y-o-y to $176. Occupancy is currently in the mid-80% range. We expect CPCA to continue receiving minimum rent for the most of FY18F.”
Going forward, the analyst still remains optimistic about the trust’s operational performance. And with respect to other factors affecting the DPS growth, the analyst notes that OUEHT will no longer receive income support for CPCA in FY18.
Nonetheless, counteracting this absence are the significant cost savings from OUEHT’s successful refinancing in Dec, which helped to bring down its average cost of debt by about 40 basis points.
As at 11.25am, units in OUEHT are trading at 88 cents or 1.1 times FY18 book with a dividend yield of 6%.
