• 4Q17 DPU fell 6.6% YoY
• Trading at 6.0% yield as at 30 Jan close
• FV increases to S$0.84

4Q Results Within Expectations

OUE Hospitality Trust’s (OUEHT) results were within expectations. 4Q17 revenue increased 1.8% YoY to S$25.2m as the 3.0% growth in hospitality revenue more than offset the 1.7% decline in retail revenue. 4Q17 NPI ended down 1.1% YoY to S$29.2m. Distributable income dropped 4.2% YoY to S$23.0m, partially because of the lack of income support for CPCA, the remainder of which was used up in 3Q17. 4Q17 DPU correspondingly fell 6.6% YoY to 1.27 S cents. FY17 DPU increased 11.5% YoY to 5.14 S cents, which makes up 99% of our full-year forecast.

2% Increase in 4Q RevPAR for MOS

MOS’s 4Q17 NPI increased 2.7% YoY on the back of a 3.9% increase in revenue, while CPCA’s NPI increased 9.1% despite its top-line remaining unchanged. MOS RevPAR growth continued in 4Q17 with a 2% YoY increase to S$225, while Banquet and F&B sales also contributed to higher master lease income.

The RevPAR increase was a little softer than expected – given the 8% YoY jump in 3Q17 and 5% YoY growth in 2Q17 – but nonetheless understandable with the addition of 7 hotels in 4Q17. We currently project a 6.1% RevPAR growth for MOS in FY18. The ramp-up at Crowne Plaza Changi Airport (CPCA) is proceeding well, with RevPAR up 32% YoY to S$176. Occupancy is currently in the mid-80% range. We expect CPCA to continue receiving minimum rent for the most of FY18F.

Cost Savings From Refinancing

We remain optimistic about OUEHT’s operational performance going forward. With respect to other factors affecting DPU growth, we do note that OUEHT will no longer receive income support for CPCA in FY18.

For a sense of magnitude, OUEHT received S$4.8m of income support in FY17, which is around 5.2% of distributable income for the year. However, 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 ~40 bps.

After model adjustments, our fair value increases from S$0.83 to S$0.84. As of the close on 30 Jan, OUEHT is trading at a FY18F yield of 6.0%.

Source: OCBC Research - 31 Jan 2018