Will Growth Continue For OUE Hospitality Trust After 4Q2017

OUE Hospitality Trust Logo

The last time I reviewed OUE Hospitality Trust was last year May 2017 ( OUE Hospitality Trust 1Q2017 Results – Signs of Recovery? ). OUE Hospitality Trust released their 4Q2017 financial results on 30th January 2018 however I only managed to take a look at it recently. I am glad that their Hospitality segment recorded higher income due to better operating performance of Mandarin Orchard Singapore and full-year contribution from the enlarged 563-room Crowne Plaza Changi Airport.

Annual Distribution per unit increased 11.5% from 4.61 cents to 5.14 cents. This gem has finally reviewed its shine and I hope this continues over the next quarters. Will it?

Below is Singapore Hotel statistics compiled by Singapore Tourism Board.

Singapore Hotel Tourism Board Statistics 2017 Jan to Dec 2017 Year-on-Year % Change
Standard Average Occupancy Rate (AOR) (%) 84.7 1.5
Total Room Revenue ($ m) 3,696.3 3.9
Standard Average Room Rate (ARR) ($) 215.6 (3.3)
Revenue per Available Room (RevPAR) ($) 182.5 (1.5)

From the above, we can see that on an annual basis, RevPAR decreased by 1.5%. From OUE Hospitality Trust presentation slides, the manager indicated RevPAR for Crowne Plaza Changi Airport (CPCA) has improved to $176 (4Q2016: $133). This however still seems lower than the average RevPAR of $182.5.

The below hotel tiering system by Singapore Tourism Board classifies the RevPar into Luxury, Upscale, Mid-Tier and Economy.

  • Luxury – Includes hotels in the luxury segment and are predominantly in prime locations and/or in historical buildings
  • Upscale – Includes hotels in the upscale segment and are generally in prime locations or hotels with boutique positioning in prime or distinctive location
  • Mid-Tier – Includes hotels in the mid-tier segment and are primarily located in prime commercial zones or immediately outlying areas
  • Economy – Includes hotels in the budget segment and are generally located in outlying areas

From the above statistics, we can see that RevPar for Luxury and Upscale hotels have declined in December 2017. I believe both Mandarin Orchard Singapore and Crowne Plaza Changi Airport are classified as Mid Tier which shows a consistent increase in RevPar from June 2017 onwards.

Moving forward, it is noteworthy

  • There isn’t anymore income support for CPCA. This is a negative point.
  • Singapore Tourism Board (“STB”) reported a 6.4% year-on-year increase in international visitor arrivals in the first eleven months of 2017.
  • Changi Airport’s Terminal 4 commenced operations on 31 October 2017 and on 18 December, Changi Airport recorded its 60th million passenger within a calendar year for the first time.
  • New hotel room supply in 2018 is expected to be lower but the market has to absorb the additional rooms that came on stream in the second half of 2017.

With the consideration in mind, there isn’t a 100% sure win if you want to invest in OUE Hospitality Trust but with the above positive points, there is a 70% chance.

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