- 2Q14 dented by weaker tourist arrivals and accelerated renovation of Mandarin Orchard Singapore.
- OUEHT is positive on 2H14 tourism. So are we.
- Maintain BUY and TP at SGD0.93, based on DDM. Further catalysts from potential yield-accretive acquisitions.
2Q14 revenue dipped 1.5% QoQ to SGD28.3m due to weaker tourist arrivals and accelerated renovation at Mandarin Orchard Singapore. Management quickened MOS’s renovation to prepare for seasonally stronger demand in 2H14. 2Q14 DPU was down 2.4% QoQ to 1.64 SGD cts. 1H14 DPU was 3.32 SGD cts, at 49% of our forecast. As at Jul 2014, 160 guest rooms, as part of a sponsor-funded programme to renovate 430 rooms, had been completed. 2Q14 RevPAR was SGD242, slightly down from SGD248 in 1Q14. Occupancy at Mandarin Gallery remained strong at 99.7%. Ten leases accounting for 10% of NLA were renewed, with a strong positive rental reversion of 33%.
Tourism outlook remains positive
OUEHT is more positive on 2H14. It believes that its newly renovated guestrooms will command better rates. Also, some 85% of Mandarin Gallery leases by gross rent will expire in the next two years. We expect positive reversions, given a limited supply of new retail space along Orchard Road.
We continue to like OUEHT’s 100% exposure to Orchard Road. It offers the highest FY14E DPU yield of 7.5% among Singapore-based hospitality and retail REITs. Further catalysts could include a yield-accretive acquisition of Crowne Plaza Changi Airport from its sponsor. Reiterate BUY with an unchanged DDM-derived TP of SGD0.93 (cost of equity 8%; TG 1.5%).
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