• MG occupancy up 11.8 ppt YoY
• Catalysts in progress
• BUY with S$0.75 FV

Double-digit Growth in 1Q17 DPU

OUE Hospitality Trust’s (OUEHT) results were in line with expectations. 1Q17 revenue increased 6.4% to S$32.1m, or 24.9% of our full-year forecast. NPI increased 4.3% to S$27.4m. DPU increased 18.2% to 1.30 S cents, or 25.0% of our full-year forecast – we deem these results were in line with expectations.

Benefiting From Greater Occupancy at MG and Enlarged CPCA

Much of the increase in OUEHT’s NPI came from Mandarin Gallery (MG); retail NPI increased 17.6% YoY to S$6.4m while hospitality NPI increased 0.9% YoY to S$21.0m. We note that the average occupancy rate at MG is 94.7%, up 11.8 ppt from 1Q16. This more than compensated for the 2.8% lower effective rent of S$23.7 psf per month. Additional master lease income of S$1.6m from CPCA offset the S$0.6m lower contribution from Mandarin Orchard Singapore (MOS).

We note that MOS’s 1Q17 RevPAR dropped 2.3% YoY to $217, due to lower rates despite the higher occupancy. As a comparison, CDLHT’s RevPAR for its Singapore hotels dropped 0.8% YoY in 1Q17. MOS’s lower room sales were partially compensated by higher F&B revenue.

Catalysts Still Intact; Re-iterate BUY

As we noted in other reports recently, we expect a significant supply injection in 2Q17 with ~2.8k rooms expected to come on-stream. In contrast, the hotel room supply is estimated to have increased by only ~130 rooms in 1Q17. Despite these headwinds, we remain optimistic on OUEHT given the positive contributions from the recovery in contributions from Mandarin Gallery and the stabilizing effect of the enlarged CPCA.

In addition, we note that the renovation of 430 rooms of MOS has completed and expect this to help OUEHT command better rates. In the medium-term (two to four years), we look forward to increased traffic after the opening of Terminal 4 in 2H17.

OUEHT’s average cost of debt in 1Q17 was 2.5% while gearing as at 31 Mar 2017 was 38.1%. Our fair value remains at S$0.75. OUEHT is currently trading at 6.9% FY17F yield.

We maintain BUY on OUEHT with a fair value of S$0.75.

Source: OCBC Research - 5 May 2017