OUE Commercial REIT - 1Q17 Results Within Expectations
- 1Q17 DPU down 6.8% YoY.
- Portfolio occupancy at 95.8%.
- Balance sheet remains firm.
Adjustment for amount of China-sourced profits to statutory reserve
- OUECT announced that 1Q17 amount available for distribution fell 2.3% YoY to S$16.6m mostly due to an adjustment for the amount set aside for the transfer of China-sourced profits from Lippo Plaza to statutory reserve, which is deemed a prudent measure by the manager to maintain sustainable distribution to unitholders, and as a result, 1Q17 DPU similarly fell 6.8% YoY to 1.23 S-cents.
- That said, we saw 1Q17 revenues and net property income increase YoY by 4.4% and 4.2% to S$44.8m and S$34.6m, respectively, mainly due to firm performances from all three properties in the portfolio.
- We judge these results to be broadly within expectations and 1Q17 distribution now constitutes 25.2% of our full year forecast.
Improved occupancy across all three portfolio assets
- Management reported that committed office occupancy at all three portfolio properties increased 1.0 percentage point over the quarter to 95.8%.
- OUE Bayfront is 100% occupied as at end 1Q17, with average passing office rents at S$11.67 psf per month in Mar 2017.
- Given that there is significant office supply in Singapore, OUECT has termed out the expiry of office leases such that more than 75% of OUE Bayfront’s gross rental income is due for renewal only in 2019 and after.
- Over the quarter, the occupancy rates at One Raffles Place and Lippo Plaza similarly improved to 93.0% and 95.8% with average passing rents at S$10.21 psf per month and RMB9.88 psm per day, respectively.
- OUECT continues to enjoy a firm balance sheet with approximately 81.2% of its borrowings on a fixed rate basis, which will hedge against interest rate volatility in a rising rate environment, and the manager has also refinanced OUECT’s Singapore dollar loans due in 2017 and 2019 ahead of maturity in Jan 2017, with a new five-year facility due in 2022.
- Maintain HOLD on OUECT with an unchanged fair value estimate of S$0.65.