OUE Hospitality Trust - Room to grow amid stability

Strong quarter 
OUE Hospitality Trust (OUE-HT) delivered S$21.7m distributable income and DPU of 1.64Scts, beating forecast made during its IPO by 2.7% and 2.5% respectively. On a qoq basis, Mandarin Orchard Singapore (MOS) recorded better room revenue, achieving higher RevPAR of S$252 (vs.S$242 in 2Q14), while occupancy remained above 90%. The higher room rates were mainly a result of i) the 160 refurbished rooms that was completed in 2Q ii) higher corporate patronage and iii) stronger food & beverage sales. Mandarin Gallery’s (MG) similarly contributed higher gross revenue, achieving average rental reversion of 4.7% and registering a passing rent of S$23.9 psf/mth (vs S$23.7 psf/mth in 2Q14). 

Further room to grow both organically and inorganically 
Looking ahead, with i) the decline in visitor arrival stabilizing; ii) Singapore is scheduled to host more major international sporting events and iii) the government’s effort in revitalising Orchard Road into a vibrant lifestyle destination, OUE-HT is well-positioned to benefit from the stronger outlook. Given its locality coupled with the continual demand for prime Orchard road space, we believe management could continue to achieve positive rental reversion when renewing the 44% (by gross rent) of lease in MG that is due to expire in FY15. Inorganically, Crowne Plaza Hotel at Changi Airport is expected to be the next acquisition target. 

Maintain Add 
With c.62% of income attributed from fix rent, OUE-HT’s earnings are more defensive than its peers. Currently, offering dividend yield of 7.7% for FY15 while trading at 1.0x P/BV vs. yield of 7.3% and 1.0x P/BV for its peers, we continue to see value in OUE-HT and have maintained our Add rating.