• 1Q15 DPU slipped 4.2% YoY
• Gearing at 42.1%
• Pare forecasts and maintain HOLD

1Q15 results fell short of expectations

OUE Hospitality Trust (OUEHT) reported its 1Q15 results which came in below our expectations. DPU slipped 4.2% YoY to 1.61 S cents despite a 2.1% increase in revenue to S$29.3m. This formed 23.1% and 22.8% of our full-year projections, respectively. Organically, if we exclude contribution from Crowne Plaza Changi Airport Hotel (CPCA), which was acquired on 30 Jan this year, we estimate that OUEHT’s gross revenue and NPI fell 7.3% and 8.6% YoY, respectively. This was attributed to the 6.7% dip in RevPAR at Mandarin Orchard Singapore Hotel (MOS) to S$223, which was in turn caused by the absence of the biennial Singapore Airshow and sluggish tourism sentiment. According to the Singapore Tourism Board, tourist arrivals fell 5.5% YoY in Jan-Feb this year, with weakness emanating particularly from Indonesia (-16.4%). On a positive note, this softness was partially offset by stable revenue (+0.7%) from Mandarin Gallery (MG) shopping mall. Effective rental psf per month at MG increased 4.2% YoY to S$24.60, while solid rental reversion of ~25% (6% of NLA) was achieved in 1Q15.

Gearing increased after CPCA acquisition

OUEHT’s gearing stood at 42.1%, as at 31 Mar 2015 (versus 32.5% as at end-FY14), following the completion of the CPCA acquisition. We expect this acquisition to help diversify the income streams of OUEHT and provide DPU accretion to unitholders. Current cost of debt is 2.5%, with no loans expiring until Jul 2016.

Maintain HOLD

Looking ahead, we expect near-term headwinds to continue plaguing the Singapore hospitality sector. However, the SG50 celebrations and corresponding events being organised should help attract more visitor arrivals to Singapore. OUEHT will be a beneficiary of this given the prime location of its assets in the Orchard Road area. We lower our revenue and DPU forecasts by 2.4% and 3.1% for FY15; and 2.2% and 2.7% for FY16, respectively, to take into account the slow start to the year. Consequently, our DDM-derived fair value estimate is cut from S$0.94 to S$0.92. Maintain HOLD on OUEHT, as valuations appear fair, in our view, with the stock trading at 1.09x FY15F P/B ratio.

Source: OCBC Research - 8 May 2015