• 1Q14 DPS above view
• RevPAR lower at S$248
• Total 64 guest rooms renovated

1Q14 results exceeded expectations

OUE Hospitality Trust’s (OUEHT) 1Q14 gross revenue and NPI came in 1.4% and 2.7% higher than its respective prospectus forecasts at S$28.7m and S$25.6m. The stronger topline, we note, was due to higher master lease revenue from Mandarin Orchard Singapore (MOS). While Mandarin Gallery’s effective gross rent of S$23.6 psf pm (S$23.69 in prior period) was in line with forecast, the mall benefited from lower utilities and marketing expenses, thus leading to stronger NPI growth. Coupled with lower trust expenses, DPS registered 1.68 S cents, 4.3% higher than forecast. This also exceeded our expectation, as 1Q14 distribution already formed 26.5% of FY14 DPS projection (consensus: 25.1%).

Better performance due to higher F&B sales

We understand that OUEHT’s move to increase the hotel room revenue from corporate guests segment had resulted in an increase in the number of corporate meetings held at MOS, thus contributing to higher F&B sales. In addition, F&B revenue was boosted by increased banquet sales. Expectedly, MOS also enjoyed strong occupancy and room rates in Feb, thanks to the Singapore Airshow 2014. However, 1Q14 RevPAR of S$248 fell short of its prospectus forecast of S$257 due to lower revenue from transient guests segment, though partially cushioned by higher demand from corporate and wholesale segments. Compared to pro forma 1Q13 RevPAR of S$251, we note that RevPAR was slightly down by 1.2% due to lower room inventory as a result of ongoing renovation. Excluding this impact, 1Q14 RevPAR would have been higher at S$252.

Maintain HOLD

As at Apr 2014, OUEHT disclosed that it has completed the refurbishment of a total of 64 guest rooms out of the 430 guest rooms to be renovated, and that the renovation programme is on track to complete in phases by end 2015. For the rest of 2014, management remains positive on the corporate travel, tourism and retail segments in Singapore. We now factor in the better results into our projections. This raises our fair value from S$0.82 to S$0.85. Maintain HOLD.

Source: OCBC Research - 6 May 2014