• 4Q19 results were in-line
• Strong performance from SG offices
• Higher FV estimate of S$0.55

4Q19 DPU Rose 12% YoY

OUE Commercial REIT’s (OUECT) posted first full quarter results upon completion of merger in Sep 2019. 4Q19 revenue rose 80.7% YoY to S$86.8m, while NPI grew 92.6% YoY to S$70.6m, mainly attributable to the consolidation of OUE Downtown Office’s income since Nov’18 and contribution from OUE Hospitality Trust (OUEHT). 4Q19 DPU was up 12% YoY to 0.84 S cents, which forms 26% of our full-year forecast.

On a full-year basis, FY19 DPU, however, fell 4.9% YoY to 3.31 S cents due to enlarged unit base. As at 31 Dec 2019, OUECT’s gearing stands at 40.3%, with average cost of debt of 3.4% per annum (previously 3.5%).

Positive rental reversions for Singapore offices

OUECT’s commercial portfolio which consists of 4 office properties (OUE Bayfront, One Raffles Place, OUE Downtown and Lippo Plaza) and 1 retail property (Mandarin Gallery) reported improved committed occupancy of 95.2% in 4Q19 (+0.5ppt from 94.7% in 4Q18). Occupancy rate of OUECT’s Singapore offices was 95.7% vs market occupancy rate of 96.1% while occupancy of Lippo Plaza in Shanghai was 89.9% vs. market occupancy of 87.6%. As for rental reversions, OUECT’s Singapore offices recorded strong positive rental reversions in the range of 9.4% to 26.5% in 4Q19 as rents for renewed leases were higher than expiring rents.

Average passing office rent for Singapore offices were higher YoY growth as a result of consecutive quarters of positive rental reversions while Lippo Plaza’s average passing office rent was down 1.7% YoY to RMB9.65 psm/day. Mandarin Gallery’s occupancy was 98.3% while average retail rent remained stable in 4Q 2019. We expect good rental reversions potential with ~20% of OUECT’s commercial portfolio by GRI due for renewal in 2020, and ~28% due in 2021.

Crowne Plaza Changi Airport RevPAR rose 9.9% YoY

For OUECT’s hospitality portfolio, 4Q19 RevPAR improved 1.9% YoY to S$216, on the back of higher occupancy and ADR at Crowne Plaza Changi Airport. Crowne Plaza Changi’s RevPAR rose 9.9% YoY to S$198 in 4Q19, boosted by stronger travel demand while Mandarin Orchard Singapore saw a 1.3% fall in RevPAR to S$229 this quarter as it continued to face downward pressure in the trading environment.

Management disclosed that Chinese tourists contributed ~10% of their hotel businesses and some booking cancellations were seen but the impact so far is minimal. After adjustments, our fair value increases from S$0.535 to S$0.55.

Source: OCBC Research - 3 Feb 2020