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What Investors Should Know About OUE Hospitality Trust’s Latest Earnings and Valuation

OUE Hospitality Trust (SGX: SK7) is a stapled trust that consists of a real estate investment trust and a business trust. The trust invests primarily in hospitality-related properties. Its portfolio currently consists of the Crowne Plaza Changi Airport hotel, and the connected Mandarin Orchard Singapore hotel and Mandarin Gallery high-end retail mall. All three properties are located in Singapore.

There are two things to know about the trust right now: Its latest financial performance and valuation.

Financial performance

Here is a table showing important items from OUE Hospitality Trust’s financial performance for the fourth quarter of 2017:


Source: OUE Hospitality Trust’s 2017 fourth quarter earnings

The year-on-year decline in the trust’s net property income was due to negative rental reversions and higher property expenses in the retail segment of its portfolio. The hospitality segment enjoyed growth due to higher master income from Mandarin Orchard Singapore.

Mandarin Gallery’s committed occupancy rate stood at 96.9% as of 31 December 2017, and its weighted average lease to expiry (by gross rent) was at 3.8 years on the same date.

Looking ahead, OUE Hospitality Trust expects the operating environment for its hospitality business to remain competitive as the market has to absorb new rooms that came on stream in 2017. It’s a similar picture for the trust’s retail portfolio. OUE Hospitality Trust expects the retail scene to remain challenging, as tenants are taking a longer time to renew or commit to leases.

In sum, 2017’s fourth quarter was a tough time for OUE Hospitality Trust and unfortunately, the troubles do not seem to be abating over the short term.

Valuation

There are two useful valuation metrics for assessing REITs. They are the price-to-book (PB) ratio, and the distribution yield.

The table below shows OUE Hospitality Trust’s PB ratio and distribution yield. It also shows the respective averages for the two valuation metrics for the 42 REITs that are in Singapore’s stock market.


Source: Stock Facts on SGX.com

We can see that OUE Hospitality Trust’s valuation is marginally higher than the market, due to its higher PB ratio and lower distribution yield.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.