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Tuesday, August 24, 2021

OUE Commercial REIT Review @ 24 August 2021

Basic Profile & Key Statistics

OUE Commercial Trust (OUECT) is a diversified REIT that invests in office, hospitality and retail properties. OUECT owns 7 properties in Singapore and China.

Performance Highlight

The decrease in gross revenue and NPI is mainly due to the divestment of 50% interest in OUE Bayfront Property, which is now recorded under the share of joint venture results. Distributable income increased due to lower rental rebates and other support measures granted to eligible tenants.

2Q rental reversion for office range from -5.7% to 2.2%, no weighted average figure provided.

OUECT completed the divestment of 50% interest in OUE Bayfront Property on 31 March with a 26.1% premium above purchased consideration in 2014.

AEI for Mandarin Orchard Singapore is on track and expected to relaunch as Hilton Singapore Orchard in January 2022. This would be the Hilton flagship in Singapore and the largest Hilton hotel in Asia Pacific. 

Related Parties Shareholding

  • REIT sponsor's shareholding is high at 47.97%
  • REIT manager's shareholding is high at 3.99%
  • Directors of REIT manager's shareholding is low at 0.05%

Lease Profile

  • Occupancy is slightly low at 91.7%
  • WALE is slightly short at 3.6 years
  • Highest lease expiry within 5 years is high at 43.4% which falls in 2025 and beyond, without breakdown
  • Weighted average land lease expiry is moderate at 60.09 years

Debt Profile

  • Gearing ratio is moderate at 38%
  • Cost of debt is high at 3.2%
  • Fixed rate debt % is slightly high at 82.2%
  • Unsecured debt % is low at 34%
  • WADM is moderate at 2.9 years
  • Highest debt maturity within 5 years is high at 36.3% which falls in 2023
  • Interest coverage ratio is low at 2.7 times
  • Perpetual securities over debts is moderate at 9.8%

Diversification Profile

  • Top geographical contribution is high at 91.3% 
  • Top property contribution is high at 25.1% 
  • Top 5 properties contribution is high at 84.3% 
  • Top tenant contribution is high at 24.2% 
  • Top 10 tenants contribution is high at 49.6%

Key Financial Metrics

  • Property yield is low at 3.5% 
  • Management fees over distribution is moderate at 13.3 % in which unitholders receive S$ 7.52 for every dollar paid 
  • Distribution on capital is slightly low at 2.4%
  • Distribution margin is low at 44.2%
  • 9.6% of the past 12 months DPU is from income support
Including retention, management fees over distribution, distribution on capital, distribution margin and income support are 12.9% (slightly low), 2.5% (low), 45.9%(slightly low) and 9.3% respectively.

Trends

As the merger with OUEHT was completed in September 2019, let's only compare the trends from 4Q 2019.
  • Uptrend - Distribution on Capital (include retention), Distribution Margin
  • Flat - DPU (include retention)
  • Slight Downtrend - NAV per Unit, Property Yield
  • Downtrend - Interest Coverage Ratio

Relative Valuation

  • P/NAV - Above +1SD for 1y; Average for 3y and 5y
  • Dividend Yield - Below average for 1y and 5y; Average for 3y

Author's Opinion

 Favorable Less Favorable
Diversified SectorLow Directors of REIT Manager's Shareholding
High REIT Sponsor's ShareholdingHigh Cost of Debt
High REIT Manager's ShareholdingLow Unsecured Debt %
Distribution on Capital UptrendConcentrated Debt Maturity
Distribution Margin UptrendLow Interest Coverage Ratio
 High Top Geographical Contribution
 High Top Property & Top 5 Properties Contributions
 High Top Tenant & Top 10 Tenants Contributions
 Low Property Yield
 Low Distribution on Capital
 Interest Coverage Ratio Downtrend

OUECT continues to provide rental rebates to eligible tenants in which S$ 6.2 million has been extended to retail tenants in 1H. With the easing of restriction and potential quarantine-free travel, the retail and hospitality segments could see a potential recovery in 2H. As for the distribution retention, there is still a S$ 5 million retention left. 


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*Disclaimer: Materials in this blog are based on my research and opinion which I don't guarantee accuracy, completeness, and reliability. It should not be taken as financial advice or a statement of fact. I shall not be held liable for errors, omissions and loss or damage as a result of the use of the material in this blog. Under no circumstances does the information presented on this blog represent a buy, sell, or hold recommendation on any security, please always do your own due diligence before any decision is made.

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