OUE COMMERCIAL REIT (SGX:TS0U)
OUE Commercial REIT - Position Early For Upcoming Recovery
- OUE Commercial REIT's 1H21 DPU rose 23% y-o-y to 1.23 cents, in line, as distribution was retained in 1H20.
- Positives:
- portfolio occupancy flat,
- lease of anchor tenant at OUE Bayfront renewed at higher rates,
- Hilton Singapore Orchard to open in Jan22, well positioned if travel borders reopen.
- Negatives:
- decline in Singapore office occupancy,
- rental reversions have moderated.
1H21 results relatively stable; S$6.2m rental rebates extended following recent restrictions
- OUE Commercial REIT (SGX:TS0U)'s 1H21 DPU was up 23% y-o-y to S$0.0123, in line with our estimates, as S$10.8m of distribution was retained in 1H20. Excluding retained distribution in 1H20, we estimate that 1H21 DPU would have been relatively flat y-o-y. 2Q21 estimated DPU rose 9% y-o-y to S$0.0055, mainly due to retained distributions in 1H20.
- OUE Commercial REIT's 2Q21 revenue and NPI fell 9% and 5% to S$59m and S$48m respectively, mainly due to lower contribution from OUE Bayfront which is now recognised as share of JV results following the partial divestment of OUE Bayfront. Excluding OUE Bayfront, revenue rose 15% y-o-y from both office (+14% y-o-y) and retail (+53%). Revenue growth from office was mainly led by OUE Downtown possibly due to positive rental reversions while revenue growth from retail was due to a low base in 2Q20 (during Circuit Breaker).
- Following the recent restrictions, approximately S$6.2m of rental rebates were extended to retail tenants.
- OUE Commercial REIT's gearing fell by 2.4 ppts q-o-q to 38%. Average cost of debt was relatively flat at 3.2% vs 3.1% in 1Q21.
- NAV remained stable q-o-q at S$0.58 (vs S$0.59 as at Dec20).
Portfolio occupancy relatively stable; Singapore office saw slight decline while retail remains weak.
- OUE Commercial REIT's portfolio occupancy was stable q-o-q at 91.7%.
- Singapore office portfolio’s occupancy declined, largely from OUE Downtown (-2.3ppt q-o-q) and One Raffles Place (ORP) (-1.5ppt) but Lippo Plaza saw occupancy improving by 5.9ppts q-o-q to 89.1% as management continues to focus on occupancy. Mandarin Gallery’s occupancy fell 2ppts q-o-q to 89.6% due to the challenging retail environment. Occupancy including the shorter-term leases stood at 96.1% vs 97.1% in 1Q21 and 96.4% in 4Q20.
Rental reversions moderated; signing rents in Singapore were relatively stable.
- Rental reversions moderated, ranging from -5.7% to 2.2% vs 0.8% to 7.2% in 1Q21. The bottom end of the range showed a larger decline, mainly from Lippo Plaza as management continues to focus on occupancy over rents.
- Despite signing rents in Singapore holding relatively stable q-o-q, the higher end of the rental reversions has moderated to low single digit possibly due to higher expiring rents.
- Nevertheless, OUE Bayfront remains resilient with the successful renewal of an anchor tenant (likely Bank of America Merrill Lynch) at a higher rental rate.
- Rental collections remain healthy at 95%.
- Following the recent restrictions, OUE Commercial REIT extended S$6.2m of rental rebates to its retail tenants.
RevPAR doubled after the temporary closure and is supported by SHN business.
- OUE Commercial REIT's 2Q21 portfolio RevPAR doubled q-o-q to S$102. Despite the refurbishment at Mandarin Orchard Singapore (MOS), the Main Tower was supported by SHN business and local staycation. Crowne Plaza Changi Airport (CPCA) RevPAR was 60.5% higher q-o-q at S$125 due to a lower base in 1Q21 when the hotel was temporarily closed in Jan21.
Key highlights post briefing:
- OUE Commercial REIT has seen some positive signs in office demand, being the beneficiary of some relocation demand either due to flight to quality trends or existing buildings a undergoing redevelopments such as AXA Tower and Singapore Land Tower. However, on the flip side, decline in occupancy was mainly due to tenants looking to cut costs and relocate out of the CBD. Given leasing demand has slowed, backfilling of vacancy will take longer. Management hopes leasing activities will pick up after Singapore reopens.
- ORP occupancy could remain weak in the near-term but hope that the relaxation of COVID-19 restrictions soon could help to backfill the vacancy.
- Management is subdued in rental reversions outlook as expiring rents are creeping up vs stabilised office rents.
- Following the recent restrictions, Mandarin Gallery’s shopper traffic has moderated to 50% to 60% of pre-COVID levels while tenant sales have fallen back to 40% to 50%. Management hopes that post relaxation, recovery could return to where it was before when shopper traffic and tenant sales peaked at ~90% and ~80% in Apr21.
- OUE Commercial REIT has offered ~0.7 months of rental rebates for its retail tenants, a little higher than its peers. Management expects that rental rebates would likely remain around these levels given the extended restrictions.
- Refurbishment at MOS is progressing well and on track to reopen by Jan 2022 as Hilton Singapore Orchard is well positioned to ride on potential reopening of travel borders. Online booking for the new hotel is already open.
- Management continues to look for acquisition opportunities and remains positive on Australia and UK markets.
Maintain BUY; target price of S$0.50.
- We maintain BUY rating on OUE Commercial REIT with target price of S$0.50. We lower our FY21F-FY22F DPU estimates by 2.5% to 8% to factor in the divestment of a 50% stake in OUE Bayfront and higher rental rebates following the recent tightening of COVID-19 measures. In addition, we estimate that S$15m from the net proceeds of the divestment will be paid out gradually over the next 3 years.
- See
Rachel TAN
DBS Group Research
|
Derek TAN
DBS Research
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https://www.dbsvickers.com/
2021-08-02
SGX Stock
Analyst Report
0.500
SAME
0.500
