OUE Commercial REIT - OCBC Investment 2020-05-11: Hospitality Segment Took A Hit From COVID-19

OUE COMMERCIAL REIT (SGX:TS0U)

OUE Commercial REIT - Hospitality Segment Took A Hit From COVID-19

OUE Commercial REIT (SGX:TS0U)’s 1Q20 revenue and NPI rose 40.5% and 42.5% y-o-y to S$77.7m and S$62.1m respectively, mainly attributable to the inclusion of Mandarin Gallery and the Hospitality segment upon the completion of merger.
As at 31 Mar 2020, OUE Commercial REIT’s gearing stood at 40.2% with debt headroom of ~S$570m and S$1.3b before reaching the gearing levels of 45% and 50%, respectively.

OUE Commercial REIT’s commercial portfolio (four offices + one retail)’s occupancy remained stable at 94.3% in 1Q20 as compared to 94.0% in 1Q19 with slight improvement in occupancy rate at OUE Bayfront and OUE Downtown Office.
As for rental reversions, OUE Commercial REIT’s Singapore offices recorded strong positive rental reversions in the range of 7.9% to 16.7% in 1Q20 while leasing momentum of Lippo Plaza was weak in 1Q, weighed by COVID-19 in China.
Despite the uncertainty caused by COVID-19, management expects to see positive rental reversions (at more moderated rate) this year, with ~14% of OUE Commercial REIT’s commercial portfolio by GRI due for renewal in 2020, and ~28.5% due in 2021. OUE Commercial REIT has extended ~S$18.8m in support to tenants, including full pass-through of property tax rebates and full rental waiver for Apr to eligible tenants.

For OUE Commercial REIT’s hospitality portfolio, 1Q20 RevPAR fell 40.2% y-o-y to S$121 on the back of significant loss of demand from tourist arrivals and postponement/cancellation of planned MICE and social events. The hospitality segment’s 1Q20 revenue fell to its minimum rent of S$16.9m under the master lease arrangements.
With the challenging outlook, we are likely to see OUE Commercial REIT’s revenue falling to its minimum rent of S$67.5m for its hospitality segment this year.
Meanwhile, management will leverage on the weak operating environment to rebrand Mandarin Orchard Singapore to Hilton Singapore Orchard. Asset enhancement works will start in phases from 2Q2020 to add new meeting facilities and refreshed food and beverage offerings. The new Hilton Singapore Orchard is expected to be re-launched in 2022 to capture the recovery in the Singapore hospitality sector.
See OUE Commercial REIT Share Price; OUE Commercial REIT Target Price; OUE Commercial REIT Analyst Reports; OUE Commercial REIT Dividend History; OUE Commercial REIT Announcements; OUE Commercial REIT Latest News.
After adjustments, our fair value decreases from S$0.55 to S$0.40.

Chu Peng OCBC Investment Research | https://www.iocbc.com/ 2020-05-11

SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.40 DOWN 0.550