What Investors Need to Know About OUE Hospitality Trust’s Latest Results

OUE Hospitality Trust (SGX: SK7), as its name suggests, is a stapled trust which invests in hospitality and/or hospitality-related assets. Currently, it has Mandarin Orchard Singapore and Mandarin Gallery as part of its portfolio.

The “stapled” part of its description comes from the fact that OUE Hospitality Trust consists of OUE Hospitality Real Estate Investment Trust and OUE Hospitality Business Trust. The latter is currently dormant, unless certain changes to the REIT’s properties occur.

Coming back to OUE Hospitality Trust, it is sponsored by OUE Ltd (SGX: LJ3), which is also a sponsor of OUE Commercial Real Estate Investment TR (SGX: TS0U). The stapled trust released its third quarter results on Monday and so, let’s take a look at the important aspects.

For the quarter ended 30 September 2014, the trust, which went public in July last year, beat its own forecasts given in its listing prospectus for a number of important financial metrics. Gross revenue, which came in at S$28.5 million, was 0.7% higher while net property income, at S$25.4 million, was 1.6% better. Distribution per stapled security (DPS) of 1.64 cents was also 2.5% higher than forecasted.

Mr. Chong Kee Hiong, Chief Executive Officer of the manager of OUE Hospitality Trust, explained the reason for the good performance:

“[Mandarin Orchard Singapore’s] 160 newly renovated guest rooms have enabled it to achieve higher revenue per available room (RevPAR) of $252 compared to the forecast RevPAR of $248. Mandarin Orchard hotel also enjoyed higher room revenue as it continued to attract more guests from the corporate business segment. The proportion of corporate business for the hotel in 3Q 2014 is 28% compared to 24% for 3Q 20132. The food and beverage (F&B) segment had also achieved better than forecast sales resulting from higher patronage. The better room and F&B performance translated into higher rental income for OUE H-REIT.”

As of 30 September 2014, OUE Hospitality Trust’s gearing ratio was at 32.7%, which was unchanged from the previous quarter. The average cost of debt came in at 2.2% per year; unit-holders might be happy to know that the trust has fixed the cost of all its borrowings via interest rate swaps. This prevents the trust from being adversely affected if interest rates move higher before it has to refinance its borrowings. On that note, OUE Hospitality Trust’s weighted average term to maturity for its borrowings clocked in at 1.8 years and there won’t be any refinancing needs until 2016 at the earliest.

Mandarin Gallery, which currently has an occupancy of 99.7%, is expected to continue to enjoy stable income as more than 98% of the mall’s rent is already fixed. On the hotel front, hotel supply has increased as new players entered the market this year. As a result, room rates are expected to remain competitive going forward. Investors have to take note of this mixed bag of prospects.

The trust closed at S$0.915 on Monday and is trading close to its latest book value of S$0.90 per unit.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.