OUEHT's retail recovery hinges on Mandarin Gallery

Its occupancy rate could grow beyond 90% by end 4Q.

OUE Hospitality Trust (OUEHT)'s profits from the retail segment stayed weak in 3Q but DBS Vickers Securities believe that Mandarin Gallery will drive growth in the remaining quarter.

"There as some signs of stabilisation with passing rents at the mall flat q-o-q. In addition, we understand based on discussions with potential tenants, effective occupancy at Mandarin Gallery could rise above 90% by end 4Q16," it said.

Mandarin Gallery delivered 22% q-o-q improvement in NPI. This is largely on account of effective occupancy rising to 89% from 79% in 2Q16, upon the opening of the Michael Kors store.

On a y-o-y basis, earnings from the retail segment was still down 6% as occupancy was higher at 95.7% in 3Q15 and the effective rent per square foot per month fell to S$24.60 from S$25 in the prior year.

Over the quarter, OUEHT also reported that for 3.9% of net lettable area (NLA) that was renewed, base rents fell 34%.

According to DBS Vickers Securities, this is partially a function of the weaker retail environment as well as the decision to adopt a lower base rent but compensated with higher turnover rent component.