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OUE Hospitality Trust Q3 2016 Results

OUE Hospitality Trust Logo

Gross revenue from the hospitality segment increased 6.3% in 3Q 2016 as compared with 3Q2015.

However, gross revenue from the retail segment (rental and other income from Mandarin Gallery Shopping Mall) was S$0.8 million lower as compared to 3Q2015. This is a decrease of 8.9%. Effective rent per square foot per month of S$24.6 for 3Q2016 was lower as compared to S$25.0 for 3Q2015.

Mandarin Gallery

As of 30th September 2016, occupancy at Mandarin Gallery was approximately 89% committed.

Two big fashion players Michael Kors and Victoria Secrets have finally opened their stores at Mandarin Gallery. with Michael Kors occupying 7,000 square feet space and Victoria Secret occupying 12,000 square feet at Mandarin Gallery. The lease signed is 7 years and 10 years respectively.

The manager of OUE Hospitality Trust claims that the long lease with the tenant is part of their strategy of enhance income stability for the trust.

3Q FY16
(S$’000)
3Q FY15
(S$’000)
YoY(%)
Gross Revenue (Hospitality) 24,796 23,326 6.3
Gross Revenue (Retail) 8,513 9,343 (8.9)
Gross Revenue (Total) 33,309 32,669 2.0
Net Property Income 29,446 28,769 2.4
Distributable Amount 22,252 23,002 (3.3)
Distribution Per Unit (“DPU”) (cents) 1.23 1.72 (28.5)

 Gearing

Gearing for OUE Hospitality Trust remains at an acceptable ratio of 37.3%. I noted that OUE Hospitality Trust has no loans due until July 2018. 63% of interest was also fixed which gives some sort of stability as most of us already know that there is an almost confirmed news from Fed that they will increase interest rate.

My Personal Opinion

oue-htrust-20161125

Share price has been on the downtrend since the beginning of the year. My personal observation is most business trust or REITs related to retail and hospitality are on the downtrend in 2016. However, it doesn’t seem too bad for OUE Hospitality Trust whereby it still manages to achieve an increase in gross revenue for its hospitality segment for 3Q2016. I was very much please that hospitality revenue was S$1.5 million higher than 3Q2015 which was a result of S$2.1 million higher master lease income from Crowne Plaze Changi Airport.

With the two new big tenants, unlikely it will add an extraordinary boost in revenue for its retail segment with its lower rent. But the long leases should provide some sort of stability of income.

If you are a shopper, there are other choices in other malls around such as Orchard Ion or Paragon. Personally I will shop at Orchard Ion or Paragon for luxurious goods as compared to Mandarin Gallery. If you are not aware, Paragon is managed by SPH REIT and Orchard Ion is managed by Capitaland.

If you are already vested like me, I will suggest to hold given the outlook that there is an increase in tourist travels over the past few months. Tourism outlook should improve in 2017. The completion of asset enhancement of Mandarin Orchard Singapore, rental from Michael Kors and Victoria Secrets should give it a slight boost in 4Q2016.

For new investors, I will suggest to look at other REITs such as Starhill Global, SPH REIT or Frasers Centrepoint Trust instead as personally they are more focused and manages retail better instead as compared to OUE Hospitality Trust.  Having said the above, Net Property Income (NPI) from Mandarin Gallery is 22% of OUE Hospitality Trust portfolio.

oue-htrust-npi-contribution-2016

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