• FY16/17 yield of 7.5%
• Upgrade to BUY
• Fair value remains at S$0.73

3Q16 results in line with expectations

OUE Hospitality Trust’s (OUEHT) 3Q16 DPU fell 28.5% YoY to 1.23 S cents or 27% of our fullyear forecast. 3Q gross revenue was up 2.0% YoY to S$33.3m, on 6.3% higher contributions from hospitality, which outweighed the 8.9% decline in retail revenue. 3Q NPI increased 2.4% YoY to S$29.4m while distribution income dropped 3.3% to S$22.3m. 9M16 revenue and DPU came up to 76% and 72% of our initial forecast.

MOS RevPAR drops 7.8% YoY

Mandarin Orchard Singapore (MOS) posted a 3.1% drop in gross revenue as 3Q RevPAR dropped 7.8% YoY to S$224. Crowne Plaza Changi Airport (CPCA) posted a 52.3% gain in gross revenue to S$6.1m, including an income support of S$1.0m, with the addition of 243 rooms which opened for business on 1 Aug 2016. Accordingly, NPI for the total hospitality segment increased 5.3% YoY.

Going forward, we note that the asset enhancement initiative (AEI) on the 430 rooms of MOS is expected to complete in 1Q17 while Victoria’s Secret is to open in 4Q16. Furthermore, with Changi Airport’s Terminal 4 slated to open in 2H17, we expect occupancy of the enlarged CPCA to increase from an average of 75% (for the period from 1 Aug to year-end), to an average of 80% in FY17 and 85% in FY18.

Fair value remains at S$0.73

9M16 NPI from Mandarin Gallery (MG) makes up 72.5% of our full-year forecast. On the other hand, 9M16 NPI from MOS came up to a higherthan-expected 78.0%, due to greater food and beverage sales. After adjusting our occupancy ramp-up projections for CPCA as well RevPAR assumptions for MOS, our fair value remains unchanged at S$0.73.

We leave our MOS RevPAR forecast for FY16 unchanged at S$213 (9M16 RevPAR was S$216). As at 30 Sep 2016, OUEHT has a gearing of 37.3%. Against yesterday’s price of S$0.680, OUEHT is trading at a blended FY16/17 forward dividend yield of 7.5%. Given current prices, we upgrade OUEHT from Hold to BUY with an unchanged fair value of S$0.73.

Source: OCBC Research - 1 Nov 2016