OUE Hospitality Trust’s Latest Earnings: What Investors Should Know
OUE Hospitality Trust (SGX: SK7), as the name may suggest, is a trust that invests mainly in hospitality assets. Currently, it has two hotels, Mandarin Orchard Singapore and Crowne Plaza Changi Airport, and a high-end retail mall, Mandarin Gallery, in its portfolio. The trust’s sponsor is OUE Ltd (SGX: LJ3).
Yesterday, OUE Hospitality Trust announced its financial results for the second quarter ended 30 June 2017 (2Q2017). The reporting period was from 1 April 2017 to 30 June 2017.
Here’s a quick rundown on the financial figures from the earnings release:
1. Gross revenue for 2Q2017 grew 16% year-on-year to S$31.2 million. The revenue was S$4.3 million higher than 2Q2016. Both the hospitality and retail segments posted higher revenue for the latest quarter.
2. Net property income (NPI) went up 15% year-on-year to S$26.6 million. This was on the back of higher gross revenue, partially offset by higher property expenses at Crowne Plaza Changi Airport (CPCA).
3. The reporting quarter’s distribution per stapled security was at 1.21 cents, up from 0.92 cents seen a year ago. This was due to higher NPI and income support received for CPCA.
4. The net asset value (NAV) per stapled security was at S$0.76, as at 30 June 2017.
Hospitality revenue for 2Q2017 was S$3 million higher than 2Q2016 due to higher master lease income from both Mandarin Orchard Singapore (MOS) and CPCA.
MOS saw higher room rates and occupancy for 2Q2017. Furthermore, food and beverage outlets did better due to higher footfall, and banquet sales improved due to more wedding events and business meetings held.
Meanwhile, at CPCA, the enlarged room inventory due to the extension of the hotel, which opened for business on 1 August 2016, helped prop up revenue.
At the retail front, revenue increased due to a higher average occupancy rate of 93.9% in 2Q2017. Last year, the rate was much lower at 79.1%. However, Mandarin Gallery recorded a lower effective rent per square foot per month of S$23.80 for 2Q2017, down from S$24.60 seen a year ago.
As at 30 June 2017, the trust had a gearing ratio of 38.2%, with an average cost of debt at 2.8%. Its floating rate loans are fully hedged using interest rate swaps. The weighted average remaining tenor of the outstanding debt was at 1.9 years, with no loans are due until July 2018.
Looking ahead, the trust said the following with regards to the hospitality sector:
“The increased rooms supply in Singapore had created a highly competitive market environment and this would likely persist as more supply is expected in 2H2017 before tapering in 2018. Changi Airport’s Terminal 4 is expected to be operational in the second half of 20174. The higher air passenger traffic through Changi Airport could potentially benefit Singapore’s hospitality sector.
CPCA continues to ramp up its operations in a challenging market which resulted in a drawdown of $5.9 million of income support. The remaining $1.6 million of income support is expected to be fully drawn down in 3Q2017.”
As for the retail sector, the trust mentioned:
“Challenges in Singapore’s retail scene remain and therefore tenants are more cautious and taking a longer time to renew or commit to leases. We are continuously exploring leasing opportunities with current and potential tenants, and remain committed to curating the right tenant mix to retain the mall’s positioning as a destination mall.”
OUE Hospitality Trust closed at S$0.76 on Tuesday. This gives a historical price-to-book ratio of 1 and a trailing yield of 6.7%.