OUE Hospitality Trust’s 2018 First-Quarter Distribution Falls

OUE Hospitality Trust (SGX:SK7) is a Singapore-listed trust that owns Crowne Plaza Changi Airport Hotel, Mandarin Orchard Singapore and Mandarin Gallery. In recent years, OUE Hospitality Trust has faced both a challenging retail and hospitality climate in Singapore, which has affected its distributions to security holders.

Recently, it released its financial results for the first quarter of 2018. Was it able to turn its fortunes around? Here are some of the takeaways from its earnings update.

1. Gross revenue for the quarter increased 1.9% to S$32.6 million from S$32.1 million a year ago. Net property income, likewise, increased 3.1% to S$28.3 million from S$27.4 million.

2. The increase in gross revenue was largely due to higher revenue from the hospitality segment but offset by weaker performance in the retail segment.

3. Distributable income, however, declined 2.3% to S$22.9 million from S$23.5 million the same time last year. This was because the trust has stopped receiving income support for Crowne Plaza Changi Airport Hotel. Consequently, distribution per stapled security declined 3.1% to 1.26 Singapore cents from 1.30 Singapore cents the previous year.

4. Revenue from the hospitality segment climbed 3.8%. Revenue per available room, a common metric used to measure the performance of a hospitality trust, increased by 8.6% from a year ago. Consequently, master lease income from Mandarin Orchard Singapore increased by 5.1%. However, income from Crowne Plaza Changi Airport Hotel remained unchanged as the master lease income was still below the minimum rent requirement set in its contract.

5. Revenue from its retail segment declined 3.3% due to negative rental reversions in the preceding quarters. The trust had a weighted average lease expiry by gross rental income of 3.7 years.

6. During the quarter, revenue from Mandarin Orchard Singapore made up 63% of total revenue, while Mandarin Gallery and Crowne Plaza Changi Airport Hotel contributed 22% and 15% respectively.

7. As of 31 March 2018, the trust had a gearing of 38.7% and an interest cover ratio of five times. The weighted average remaining tenor of debt (a measure of the average time till it has to repay its debt) stood at 3.3 years, which is fairly long. The average cost of debt was 2.3% per annum and the REIT has no loans due until December 2020.

8. As of the end of the quarter, the trust had S$2.26 billion in assets and S$880 million worth of liabilities. Its net assets, therefore, stood at S$1.38 billion.

9. On the outlook for the rest of the year, the trust’s management said that the Singapore Tourism Board expects growth of 1-4% international visitor arrivals in 2018. Together with large biennial events this year, it expects demand for hotel accommodation to rise. However, a large new room supply in 2017 will continue to make the market environment competitive through the rest of the year. The management also said that the challenges in Singapore’s retail scene remain as more tenants are more cautious and take longer time to renew or commit to leases.

10. At the time of writing, units of OUE Hospitality Trust exchanged hands at S$0.81. This translates to a price-to-book ratio of 1.1 and an annualised distribution yield of 6.2%.

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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 Jeremy Chia doesn’t own shares in any companies mentioned.