Hotel revenues drive OUE's results

Slower development sales and commercial leasing were offset.

CIMB noted:

Hotel revenues remained the main driver of OUE’s 2Q results, offsetting slower development sales and commercial leasing. Investor focus, though, is likely to centre on the potential for asset recycling upside.

2Q core net profit was slightly below, at 22% of our full-year forecast (20% of consensus), taking 1H12 to 41% of our full year estimate. Development sales and incremental office take-up were lower than expected and could persist in 2H12.

Hotel revenues for 2Q12 rose 29% yoy to S$57.6m, driven by a better performance from Mandarin Orchard and contributions from Crowne Plaza. This offset slower-than-expected booking of Twin Peaks’ development sales (S$3.7m in 2Q).

We estimate that around 40+ units (c.10% of the project) have been sold, unchanged from last quarter. Some of the operational gloss from hotels was erased by slightly higher group interest costs, which came in at 29% of our full-year estimate.

We understand that occupancy at ORP2 has inched up from 55% in 1Q12 to c.60%. The pace of new take-up remains slow due to the wait-and-see mentality of prospective tenants.

The rise in occupancy for OUEB was also slight, from 84% in 1Q12 to 85.9% in the quarter. While we believe that leasing momentum is likely to remain tepid in 2H12, we maintain our view that the office sector could hit bottom by end-2012.