OUE Hospitality Trust (SGX: SK7), or OUEHT, is a Singapore-based real estate investment trust (REIT) that focuses on investing primarily in properties used for hospitality and/or hospitality-related purposes. The assets under the trust are Mandarin Orchard Singapore, Crowne Plaza Changi Airport and Mandarin Gallery.
There are two things about the REIT that investors may want to know about right now: its latest financial performance and valuation.
Here’s a table showing important items from OUEHT’s financial performance for the second quarter of financial year ending December 2018.
Source: OUEHT’s Earnings Update
Overall, we see that all metrics came in weaker as compared to the same period last year.
The decline in net property income was due to weaker performance in both the retail and hospitality segments. Consequently, distribution per stapled security came in lower at 1.17 cents, 3.3% lower than the same period last year. As of 30 June 2018, the REIT clocked in a gearing ratio of 38.7%, below the regulatory ceiling of 45%.
Chen Yi-Chung Isaac, acting CEO of the REIT’s manager, commented during the earnings release:
“OUE H-Trust’s hotel portfolio revenue per available room (RevPAR) rose 2.6% to $195 in 2Q2018 compared to 2Q2017. Crowne Plaza Changi Airport’s (CPCA’s) operating performance has progressively improved with RevPAR increasing 10.5% to $168 in 2Q2018 from $152 in 2Q2017. For 2Q2018, OUE H-Trust received minimum rent for CPCA as it continued with the ramping up of its operations.Mandarin Orchard Singapore (MOS) recorded marginally lower RevPAR compared to 2Q2017 due to weaker demand from the wholesale segment, partially mitigated by higher demand from the transient segment. Food and beverage sales in MOS recorded a decline in banquet sales, partially mitigated by higher revenue achieved in all MOS’ food and beverage outlets. Overall, the total revenue and NPI from hospitality segment was 1.4% and 0.5% lower than 2Q2017.”
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 OUEHT’s PB ratio and distribution yield. It also shows the respective averages for the two valuation metrics for the 41 REITs that are in Singapore’s stock market.
Source: SGX StockFacts (data as of 8 October 2018)
We can see that OUEHT’s valuation is mixed. On one hand, it is trading at a discount to the market average based on its high distribution yield. Yet, its PB ratio is higher than the market average.
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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.