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OUE Hospitality Trust Delivers Lower Distributions In Its Latest Earnings Update

Yesterday evening, OUE Hospitality Trust (SGX: SK7) reported its 2018 third quarter earnings update. As a quick introduction for context later, OUE Hospitality Trust is a stapled trust that consists of a business trust and real estate investment trust. Its portfolio contains three properties that are all located in Singapore; these are two hotels (the 1,077-room Mandarin Orchard Singapore and the 563-room Crowne Plaza Changi Airport) and a high-end retail mall (Mandarin Gallery, which is connected to Mandarin Orchard Singapore).

Let’s take a quick look at the important points about OUE Hospitality Trust’s latest results:

1. Gross revenue for the reporting quarter dropped by 2.2% year-on-year to S$33.2 million. Net property income followed suit, decreasing by 1.4% to S$29.1 million.

2. The pullback in OUE Hospitality Trust’s revenue and net property income led to distributable income falling 5.4% from a year ago to S$23.3 million. Ultimately, the trust’s distribution per unit (DPU) declined by 5.9% to 1.28 cents. The lower DPU can be mostly attributed to the loss of income support for Crowne Plaza Changi Airport.

3. As of 30 September 2018, OUE Hospitality Trust’s gearing stood at 38.7%, which is getting close to the regulatory gearing limit for REITs of 45%. The trust’s weighted average interest rate came in at 2.4% per year, and it had an average debt maturity of 2.7 years. The interest cover was 4.8, and the trust also reported that 71% of its loans were on fixed rates – the low proportion of floating-rate debt mitigates risk from interest rate hikes. There are also no debt refinancing obligations until December 2020.

4. The Trusts’ revenue per available room for 2018’s third quarter came in at S$217, down 0.9% year on year; Crowne Plaza saw a 6.3% increase, but Mandarin Orchard’s rate dropped by 3.7% from a year ago. On the retail front, OUE Hospitality Trust reported an increase in its occupancy rate from 94.7% a year ago to 96.8% for the same period. Mandarin Gallery has a weighted average lease expiry by gross rent of 3.6 years. The mall’s rental reversion rate in 2018’s third quarter was a negative 9.3% – that’s not a positive development.

5. OUE Hospitality Trust’s net asset value (NAV) came in at S$0.76 per unit, unchanged from a year ago.

6. In its latest earnings update, OUE Hospitality Trust gave the following useful comments about its outlook and the state of its markets:

“Singapore’s tourism sector continues to register healthy visitor arrivals. For the first eight months of 2018, Singapore Tourism Board (“STB”) reported a 7.5% year-on-year increase in international visitor arrivals, while the number of visitor days increased by 5.5% for the same period. STB has announced increased marketing efforts including partnerships to strengthen Singapore’s status as a regional cruise hub and further promote the city’s food and beverage industry. STB has also announced plans to enhance the city’s attractiveness as a tourist destination, including a revamp of the Orchard Road shopping belt with increased activities and innovation.

The hospitality outlook remains positive with the continued growth in tourist arrivals and limited supply of new hotel rooms. Changi Airport’s Terminal 1 is undergoing expansion works to increase its capacity while development plans for Changi East and Terminal 5 are on track. Jewel Changi Airport (“Jewel”) is expected to open by March 20198. CPCA shall benefit from the enhancement and expansion works at Changi Airport in the long term, as well as the upcoming opening of Jewel which the hotel will be connected to via a pedestrian bridge at Terminal 3.

Retail pipeline supply in Singapore remains limited and demand for prime retail space continues to remain healthy, supported by tight vacancies. However, as challenges remain in the retail environment, we continue to work closely with tenants in curating a differentiated mall offering while optimising the asset’s performance.”

OUE Hospitality Trust’s stapled security price is currently S$0.68, which gives the trust a price-to-book ratio of 0.89, and a trailing distribution yield of 7.3%.

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The Motley Fool Singapore contributor Esjay contributed to this article. Esjay does not own shares in any companies mentioned. 

The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. The Motley Fool Singapore writer Chong Ser Jing does not own shares in any companies mentioned.