OUE Hospitality is a unique hospitality trust that owns the Mandarin Orchard Hotel, the Changi Crowne Plaza Hotel and a retail shopping front in Mandarin Gallery.
In yesterday’s OUE Hospitality 1st quarter results, we are seeing more data showing the challenging scenario:
Retail segment pertains to rental and other income from the Mandarin Gallery (“MG”) shopping mall.
Retail revenue for 1Q2016 was $1.5 million lower than 1Q2015 mainly due to landlord fit out periods for incoming tenants and lower average occupancy rate. As at 31 March 2016, approximately 13% of the net lettable area is under landlord fit out period. The mall recorded an effective rent per square foot per month of $24.4 for 1Q2016 as compared to $24.6 for 1Q2015.
The retail scene in Singapore remains challenging. As a result of the impact of slower lease renewals and more fit-out periods both by the landlord in between lease periods and by the tenants, Mandarin Gallery is expected to record lower average occupancy in FY2016. Michael Kors and Victoria’s Secret are expected to open in 3Q2016 and 4Q2016 respectively, and both tenants account for approximately 15% of the mall’s net lettable area. Although OUE H-Trust’s retail segment income is impacted in 2016 by the lower rental contributions due to longer fit-out periods by the landlord and tenants, the strategy to sign strong tenants for longer lease periods (seven years for Michael Kors and 10 years for Victoria’s Secret) will benefit OUE HTrust through enhanced income stability in the long run.
As a result of the adoption of lower base rent and higher turnover rent component for some leases, the average rental reversion was -19% for leases signed in 1Q 2016, for approx. 5.8% of the NLA.
Now I wonder how Paragon is able to do so well in this condition.