• 6.9% RevPAR growth above that of peers
• DPU fell 3.1% YoY w/o income support
• 6.3% yield as at 2 May close

1Q Results Within Expectations

OUE Hospitality Trust’s (OUEHT) results were within expectations. 1Q18 revenue increased 1.9% YoY to S$32.7m, with the 3.8% growth in hospitality revenue more than offsetting the 3.3% decline in retail revenue. Distributable income dropped 2.3% YoY to S$22.9m, partially because of the lack of CPCA income support which was used up in 3Q17. This was mitigated by the higher income from hospitality as well as lower interest expense. 1Q18 DPU correspondingly fell 3.1% YoY to 1.26 S cents and met 23.7% of our initial full-year forecast.

6.9% Increase in 1Q RevPAR for MOS

MOS’ 1Q18 NPI increased 5.9% YoY on the back of a 5.1% increase in revenue, while CPCA’s NPI increased 2.4% despite its top-line remaining unchanged. MOS RevPAR growth continued in 1Q18, with a 6.9% increase to S$232 due to higher ARR across all segments and higher demand from both corporate and wholesale segments. Notably, MOS’s RevPAR growth is higher than the figures reported by CDL Hospitality Trusts (+0.8% for SG Hotels) and Far East Hospitality Trust (+3.3% for SG hotels).

We continue to project a 6.1% RevPAR growth for MOS for the whole of FY18. We generally expect to industry-wide RevPAR growth to accelerate further in coming quarters, though we also note that OUEHT has set a high threshold for itself given the growth it already clocked in 2H17.

Ramp-up at CPCA Continues

The ramp-up at CPCA is still in progress, with RevPAR up 13.6% YoY or 4.5% QoQ to S$184. We believe the asset will continue receiving minimum rent for the most of FY18F. For Mandarin Gallery, the 3.3% YoY decline in 1Q revenue was slightly larger than we expected. Nonetheless, we note that the asset clocked a positive rental reversion of +2.2% for leases signed during the quarter, which in turn made up around 3% of its NLA.

After adjustments, our fair value remains at S$0.84. While we remain positive on OUEHT’s operational outlook, we believe valuations as at 2 May’s close are not particularly attractive. We see S$0.78 and below as a better entry level. As of 2 May’s close, OUEHT is trading at a FY18F yield of 6.3%. Maintain HOLD.

Source: OCBC Research - 3 May 2018