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CGS-CIMB maintains 'hold' on OUE C-REIT, cuts TP after 1HFY2022 DPU miss

Jovi Ho
·3-min read

OUE C-REIT’s DPU of 1.08 cents, down 12.2% y-o-y, missed expectations at 39.9% of CGS-CIMB’s forecast.

OUE Commercial REIT (OUE C-REIT) may be riding on recovery in Singapore and China, but a weak 1HFY2022 distribution per unit (DPU) of 1.08 cents missed CGS-CIMB Research’s forecasts, as revenue and net property income (NPI) declined y-o-y.

OUE C-REIT’s 1HFY2022 ended June revenue and NPI of $115.8 million and $93.6 million were down 13.3% and 14.2% y-o-y respectively, coming in at 46.3% and 47.2% of CGS-CIMB’s  FY2022 estimate.

Following OUE C-REIT’s 1HFY2022 results release last week, CGS-CIMB Research analyst Lock Mun Yee maintains “hold” on the REIT with a lower target price of 39 cents, down from 43 cents previously.

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OUE C-REIT is one of Singapore’s largest diversified REITs, spanning commercial and hospitality segments in Singapore and Shanghai.

The lower revenue for the period was due to $5 million in rental rebates at Shanghai's Lippo Plaza, due to lockdowns in April and May. Management also attributed lower revenue to a higher base the year prior, with the deconsolidation of Singapore’s OUE Bayfront upon divestment of a 50% stake on March 31, 2021.

OUE C-REIT’s DPU of 1.08 cents, down 12.2% y-o-y, missed expectations at 39.9% of CGS-CIMB’s forecast.

The distribution will go ex on Aug 1 and be paid to unitholders on Sept 6.

Hospitality and retail segments nearing pre-pandemic levels

In a July 27 note, Lock points to revenue per available room (RevPAR) at Hilton Singapore Orchard (HOS), which tripled q-o-q to $302 as tourist numbers picked up, doubling portfolio RevPAR to $226.

Occupancy and average daily rates for HOS improved from 60% and $300/night to 80% and $500/night as at end-June. “Despite 2Q2022 being a seasonally slow quarter, HOS’s RevPAR of $302 surpassed Mandarin Hotel’s 4Q2019 (seasonal high) RevPAR of $226, validating the decision to rebrand the hotel. However, due to manpower shortages, operational capacity is capped at 80%,” writes Lock.

Despite the remarkable ramp-up in operations since March, however, Lock thinks HOS will generate minimum rents for FY2022 given the reduced room inventory for FY2022.

Meanwhile, Crowne Plaza Changi Airport’s RevPAR jumped 12.2% q-o-q to $142 in 2Q2022 after taking public bookings. Mandarin Gallery’s occupancy rose 1.6 percentage points (ppts) q-o-q to 90.3% with shopper traffic and sales at 90% and 85% of pre-Covid-19 levels.

Healthier Singapore office occupancy shifts focus to driving rents 

Singapore’s office portfolio occupancy ticked up from 90.9% to 92.9% as at end-1H2022. Occupancy at OUE Bayfront dipped 3.1 ppts q-o-q to 96.2% due to non-renewals.

Average passing rents at OUE Bayfront were $12.55 psf/month, the highest since OUE C-REIT’s IPO in January 2014, due to positive reversions in the past several months, writes Lock. “However, reversions for 2QFY2022 came in at -3.7%, compared to 2.5% growth in 1QFY2022, due to above-market expiring rents of $14.32 psf/month (1QFY2022: $12.93).”

In addition, the signing of a large tenant at OUE Downtown pushed occupancy from 87.8% to 93.0%, while One Raffles Place (ORP) was stable q-o-q at 95.6%.

Lippo Plaza (LP) saw occupancy dip from 91.6% to 87.7% as a tenant opted not to renew its lease citing business uncertainties.

2QFY2022 reversions for OUE Downtown, ORP and LP came in at -0.9%, +4.0% and -1.7% respectively.

Leasing activity was hindered by lockdowns in Shanghai in April and May, notes Lock, although management has seen a pick-up in physical tours towards the end of June.

Units in OUE C-REIT are trading down about 11% year to date. As at 9.42am, units are trading flat at 38 cents.

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