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OUE Hospitality Trust Yet to Shine with Its Gem Crowne Plaza Changi Airport

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The results from OUE Hospitality Trust kind of surprised me. The income for OUE Hospitality Trust comes from two main segment which is the Hospitality segment and Retail segment. I am expecting lower revenue from the Hospitality segment due to current economic headwinds in the tourism sector and stronger revenue from its Retail segment due to opening of Michael Kor and Victoria Secrets but it somehow was the opposite.

The Hospitality segment posted a higher revenue in 4Q2016 as compared to 4Q2015. I shall not go into the breakdown here as interested readers can read up their own from the presentation slides.

The Retail segment was somehow disappointing as it posted S$0.4 million lower in revenue for 4Q2016 as compared with 4Q2015. Rental rate fell was $23.6 in 4Q2016 and $24.6 in 4Q2015.

Gross Revenue 33,224 32,981 0.7%
Net Property Income 29,555 28,841 2.5%
Distributable Income 23,997 22,781 5.3%
Distribution Per Unit (“DPU”) (cents) 1.36 1.70 (20%)

In 2016, OUE Hospitality Trust issued rights which will have a dilution effect on its earnings per share (OUE Hospitality Trust Issues Rights to Fund Acquisition of Crowne Plaza Changi Airport Extension).

As at 31 December 2016, OUE Hospitality Trust had 1,799,607 Units as compared to 31 December 2015 where OUE Hospitality Trust had 1,339,095 units. This explains the significant decline in distribution per unit.

Gross Revenue 122,494 124,588 (1.7%)
Net Property Income 107,395 109,106 (1.6%)
Distributable Income 82,504 87,357 (5.6%)
Annualized Distribution Per Unit (“DPU”) (cents) 4.61 6.55 (29.6%)

Dividend Yield

At a closing price of S$0.66, the annualized dividend yield works out to be 6.98%.

Investment Risks

Tourism industry continues to face headwinds

In the current subdued global and local economy, corporate and consumers tend to be more conservative in their travel expenditures. OUE Hospitality Trust which is purely focused on Retail and Hospitality segment will be affected since there are no other forms of income diversification.

Declining RevPar

Year-to-date November RevPAR for Singapore hotels was 4.8% lower than the same period last year. 77% of OUE Hospitality Trust Net Property Income (“NPI”) comes from Crowne Plaza Changi Airport and Mandarin Orchard Singapore. Hotels may continue to cut room rate to compete for customers in the current competitive market. Slashing room rate is definitely better than leaving the room empty.

Revenue per available room (RevPAR) is a performance metric used in the hotel industry and is calculated by multiplying a hotel’s average daily room rate (ADR) by its occupancy rate. – Investopedia

Stock Catalyst

Opening of Changi Airport Terminal 4

Changi Airport Terminal 4 is expected to open in the second half of 2017. There are a total of 563 hotel rooms including 27 suite with CPCA and CPEX combined. There is a possible attraction of tourists to visit Singapore for the opening and perhaps stay at CPCA and CPEX for convenient.

Asset Enhancement of Mandarin Orchard Singapore

Asset enhancement programme on 430 rooms of Mandarin Orchard Singapore (“MOS”) is expected to complete in 1Q2017.  Mandarin Orchard Singapore has 1,077 rooms available.

The renovation and increase of the meeting facilities in MOS has also been completed. This should cater for requests for banquets and conferences which will add to its revenue.

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