20190215 :-

LG Take

  • Despite improving overall occupancy %, negative pricing revision especially at Mandarin Gallery has been adversely impacting OUE HT REIT
  • REIT has only 3 properties, thus not very well diversified i.e. Changi Airport Crown Plaza Hotel, Mandarin Orchard, and Mandarin Gallery.
  • REIT unable to generate revenue beyond the minimum master lease income guarantee @ Changi Airport Crown Plaza Hotel
  • Due to trust debt regulatory limit, it is unlikely that they will acquire any new properties to grow the business i.e. "what you see is what you get"i.e. capping any upside from diversification and economies of scale

Key Take Aways : Dividend yield is still attractive at 7.4%, PB is 0.92 i.e. discount to NAV.

Suggested Investment Posture : HOLD. SELL opportunistically. Pricing revision at Mandarin Gallery will only get worse. With new hospitality brands and properties being opened at various locations in Singapore, Mandarin Hotel will face more pricing pressure to keep occupant rates healthy. Thus stronger buffeting headwinds than kinder tailwinds.

20190131 :-


OUE Hospitality Trust’s Latest Earnings: Full Year Distribution Slides 2.9% Jeremy Chia | January 31, 2019 | More on: SK7

OUE Hospitality Trust ( SGX: SK7) distributions have been very erratic since it listed in 2013. On Tuesday, the trust reported another year of distribution per stapled security (DPS) decline. OUE Hospitality Trust, which owns the Crowne Plaza Changi Airport, Mandarin Orchard and Mandarin Gallery, has suffered due to a challenging retail scene in Singapore and inconsistent performances in both its hotels.

The numbers

Source: Author’s compilation of data from OUE Hospitality Trust 2018Q4 Results

What Happened?

The hospitality segment, which includes Crowne Plaza Changi Airport and Mandarin Orchard, performed worse than the previous year. Mandarin Orchard, in particular, suffered due to lower master lease income as a result of lower food and beverage sales.

There was no change in Crowne Plaza Changi Airport as the trust received the minimum rent as the master lease income was below the minimum rent.

On a slightly brighter note, there were some improvements as revenue per available room at Crowne Plaza improved by 7.7%. Nevertheless, it was still insufficient to increase the master lease income above the minimum rent.

In its retail segment, represented by Mandarin Gallery, the trust reported an improvement in net property income due to lower property expenses. However, revenue again declined in the last quarter, continuing a long-running trend this year. The table below shows the performance of its retail segment in 2018.

Source: OUE Hospitality Trust FY2018 Earnings Presentation

Financial standing

As of 31 December 2018, gearing stands at 38.8% Interest cover is 4.7 times 71% of the trust’s debt was on fixed rates As it stands, the trust has S$139 million in debt headroom before reaching the 45% regulatory limit Net asset value per unit is S$0.75 While the trust maintained its gearing below 45%, there is limited financial flexibility to make more debt-funded acquisitions. As such, I am not expecting any debt-funded acquisitions from the trust any time soon.

Portfolio statistics

Mandarin Gallery:

Occupancy increased to 99.1% as of 31 December 2018 Rental reversion rate of negative 8.9% recorded in the last quarter Weighted average lease expiry by gross rent is 3.5 years

Hospitality sector:

Overall revenue per available room increased by 2.9% While there were higher occupancies at Mandarin Gallery, high negative rental reversion continues to remain a worry. The high negative rental reversion rate this quarter continues a long-running trend that has persisted over the last year.

The Foolish bottom line

It was another poor year for the trust, which has struggled due to a challenging retail and hospitality scene. It is already two years running that the trust earned the minimum rent from its master lease agreement at Crowne Plaza Changi Airport. Its retail segment is also facing headwinds with negative rental reversion recorded in 2018.

Moreover, the trust is quite highly geared and has little capacity to fund acquisitions.

OUE Hospitality Trust units currently exchange hands at S$0.69 per piece. At this price, the REIT has a price-to-book ratio of 0.92 and a distribution yield of 7.4%.

OUE H Trust 5 QTY @ $812.80

Wait & Buy

closure 31 jan

OUE Hospitality Trust (SK7) - SGX recommendation is moving towards 'Buy' and TP is $0.783, Closing price on 10 Oct 2017 Tue was $0.795 which is above TP. Float 55.82%. Finacial reports were quite positive. Low price with high yield among the few compared.

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