OUE Commercial REIT - CGS-CIMB Research 2020-11-13: Slight Improvement Q-o-q


OUE Commercial REIT - Slight Improvement Q-o-q

  • OUE Commercial REIT's 3Q20 gross revenue/net property income declined 12%/11.4% y-o-y.
  • Commercial portfolio continues to enjoy positive reversion; hospitality contributions underpinned by minimum rent component.
  • Reiterate HOLD rating with an unchanged target price of S$0.48.

OUE Commercial REIT's 3Q20 results highlights

  • In its 3Q20 business update, OUE Commercial REIT (SGX:TS0U) reported a 12%/11.4% y-o-y increase in 3Q20 gross revenue/net property income following the merger of OUE Commercial REIT and OUE Hospitality Trust in Sep 2019, partly offset by rental rebates extended to tenants. Amount available for distribution was up 15.8% y-o-y at S$34.2m.
  • OUE Commercial REIT’s gearing stands at 40.3% as at end-3Q with average interest cost at a slightly lower 3.1%. Management indicated it is in documentation stages for refinancing of borrowings due in late-FY20 while refinancing of S$450m of borrowings due in FY21 is in progress. Post completion of refinancing activities, average term of debt is expected to increase to 2.6 years, from 1.6 years as at 3Q20.

Higher committed commercial occupancy, positive rental reversion

  • OUE Commercial REIT's 3Q commercial revenue/NPI of S$54m/S$40.5m were 3.2%/6.2% lower y-o-y due to rental rebates extended to tenants. To date, rental rebates committed to commercial tenants amount to S$18.5m.
  • Committed portfolio occupancy improved q-o-q to 92.3% at end-3Q, with the resumption of leasing activities post circuit breaker and gradual reopening of the economy. Singapore offices continued to enjoy positive rental reversions of 2.9-22.1% in 3Q.
  • Average passing rents for its Singapore office properties ticked up 0.2-1.4% q-o-q while Mandarin Gallery’s passing rent inched up 0.7% q-o-q, although occupancy slipped to 93.9%. OUE Commercial REIT has a remaining 3.1% and 28.3% of commercial rental income to be renewed in 4QFY20 and FY21, respectively.

Slow hospitality sector recovery

  • OUE Commercial REIT's hospitality segment contributed S$16.9m/S$15.3m of revenue/NPI in 3Q, essentially coming from the fixed rent component of its master lease. While an improvement on a q-o-q basis, portfolio revenue per available room (RevPar) was still 60.8% lower y-o-y at S$88, dragged largely by a 68% contraction in Mandarin Orchard Singapore’s (MOS) RevPar while Crown Plaza Changi Airport saw a 46% contraction in RevPar.
  • The better performance of Crown Plaza Changi Airport was due to additional demand from the air crew segment.
  • While we anticipate the hospitality sector recovery to be gradual, the fixed component of its master lease will provide some income stability.

Reiterate HOLD rating

LOCK Mun Yee CGS-CIMB Research | EING Kar Mei CFA CGS-CIMB Research | https://www.cgs-cimb.com 2020-11-13
SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.482 SAME 0.482