OUE Commercial REIT: Prime Offices and Hotels

Timothy Ang  |   25 May 2021  |    95 views

OUE Commercial Real Estate Investment Trust (OUECT) is one of Singapore’s largest diversified REITs with a market cap of S$2.15bn as at 7 June 2021. It owns a portfolio of 7 prime office, retail and upscale hotel properties in Singapore (91% of FY20 revenue) and Shanghai, China (9%). As at 30 December 2020, the portfolio was valued at S$6.5bn and comprised of commercial (62% FY20 revenue), hospitality (23%) and retail (15%) segments. OUECT is managed by OUE Commercial REIT Management Pte. Ltd. and sponsored by OUE Limited. OUECT has the right of first refusal over its sponsor’s income-producing commercial, hospitality and integrated development properties. As at 31 March 2021, OUECT is 48% owned by OUE Group which provides support to the REIT.

Portfolio details:

  1. OUE Bayfront: 50% stake, 20.3% of FY20 revenue
  2. One Raffles Place: 67.95% stake, 25.2% FY20 revenue
  3. OUE Downtown Office: 14.7% stake
  4. Lippo Plaza: 91.2% strata interest, 8.9% of FY20 revenue, located in prime commercial district of Huangpu in Puxi, Shanghai
  5. Mandarin Gallery: high-end retail mall, 7.8% of FY20 revenue 
  6. Mandarin Orchard Singapore: 1,077-room hotel, 15.4% of FY20 revenue
  7. Crowne Plaza Changi Airport: 563-room hotel, 7.7% of FY20 revenue

Credit metrics as at 31 March 2021:

  • Aggregate leverage: 40.4%
  • Interest coverage: 2.6x


+ Hotels have minimum income until 2028. Mandarin Orchard Singapore and Crowne Plaza Changi Airport’s master lease agreements are subject to a minimum rent of S$45.0mn and S$22.5mn per annum respectively, totalling S$67.5mn (~50% of FY19 hospitality revenue) per annum until 2028. This provides downside protection amid weakness in hospitality and closure of one tower of Mandarin Orchard Singapore for renovation, which is expected to reopen in 2022 re-branded as Hilton Singapore Orchard.

+ Singapore offices saw positive rental reversions. For 1Q21, rental reversions for OUECT’s Singapore office properties ranged from 0.8% to 7.2% YoY. The trend of positive rental reversions was sustained since 2018. With the expected withdrawal of some office buildings for redevelopment such as Fuji Xerox Towers, Grade A CBD supply growth will be moderated in 2021 and downward pressure on rents is expected to stabilise by year-end.

+ Ability to sell assets at a premium. On 31 March 2021, OUECT completed a 50% divestment of OUE Bayfront to the European fund, Allianz Real Estate-managed fund, for net proceeds of S$262.6mn and net divestment gain of S$26.3mn. OUECT was able to sell at valuations 7.3% over book value. Amid the low interest rate environment, particularly in Europe, European funds are seeking attractive yielding assets and willing to pay at premium. A portion of the sales proceeds will be used to repay S$155mn of convertible perpetual preferred units.


– High lease expiries to weigh on occupancies. For the commercial segment, 24.5% of gross rental income is expiring in 2021, of which 4.8% was renewed or secured for new leases as of 1Q21. All of OUECT’s offices are below market average occupancies except for OUE Bayfront. The prime retail Mandarin Gallery sees 29.9% of gross rental income expiring in 2021, with 5.6% secured as of 1Q21. Tenant retention remains priority for OUECT.

– Tight interest coverage. OUECT’s interest coverage ratio was 2.6x for 1Q21, tracking closely to the MAS minimum of 2.5x. Aggregate leverage stood at 40.4% as at 31 March 2021, around management’s internal target of 40%.


OUECT’s operating metrics remain soft as COVID-19 trends impact prime commercial and retail occupancies. Nevertheless, we are sanguine on the company’s credit profile given the attractiveness of OUECT’s prime assets to yield hunting investors despite the muted leasing environment.


Related Articles

Key points for September FOMC Meeting

The U.S. Federal Open Market Committee (FOMC) concluded its two-day meeting on the 20th of September 2023.

Shawn Sng  |   21 Sep 2023

AIA 5.1% NC5.5 Perpetual Tier 2 SGD

AIA Group Limited recently announced the issuance of its NC5.5 Tier 2 perpetual SGD bonds with a final price guidance of 5.1%.

Shawn Sng  |   05 Sep 2023

CapitaLand Ascott Reit 4.2% 5 year Senior Unsecured SGD

CapitaLand Ascott Trust, or CLAS, recently announced the issuance of its 5-year senior unsecured bonds with a final price guidance of 4.2%.

Shawn Sng  |   30 Aug 2023


These commentaries are intended for general circulation. It does not have regard to the specific investment objectives, financial situation and particular needs of any person who may receive this document. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of any person acting based on this information. Opinions expressed in these commentaries are subject to change without notice. Investments are subject to investment risks including the possible loss of the principal amount invested. The value of the units and the income from them may fall as well as rise. Past performance figures as well as any projection or forecast used in these commentaries are not necessarily indicative of future or likely performance. Phillip Securities Pte Ltd (PSPL), its directors, connected persons or employees may from time to time have an interest in the financial instruments mentioned in these commentaries. Investors may wish to seek advice from a financial adviser before investing. In the event that investors choose not to seek advice from a financial adviser, they should consider whether the investment is suitable for them.

The information contained in these commentaries has been obtained from public sources which PSPL has no reason to believe are unreliable and any analysis, forecasts, projections, expectations and opinions (collectively the "Research") contained in these commentaries are based on such information and are expressions of belief only. PSPL has not verified this information and no representation or warranty, express or implied, is made that such information or Research is accurate, complete or verified or should be relied upon as such. Any such information or Research contained in these commentaries are subject to change, and PSPL shall not have any responsibility to maintain the information or Research made available or to supply any corrections, updates or releases in connection therewith. In no event will PSPL be liable for any special, indirect, incidental or consequential damages which may be incurred from the use of the information or Research made available, even if it has been advised of the possibility of such damages. The companies and their employees mentioned in these commentaries cannot be held liable for any errors, inaccuracies and/or omissions howsoever caused. Any opinion or advice herein is made on a general basis and is subject to change without notice. The information provided in these commentaries may contain optimistic statements regarding future events or future financial performance of countries, markets or companies. You must make your own financial assessment of the relevance, accuracy and adequacy of the information provided in these commentaries.

Views and any strategies described in these commentaries may not be suitable for all investors. Opinions expressed herein may differ from the opinions expressed by other units of PSPL or its connected persons and associates. Any reference to or discussion of investment products or commodities in these commentaries is purely for illustrative purposes only and must not be construed as a recommendation, an offer or solicitation for the subscription, purchase or sale of the investment products or commodities mentioned.

Contact us to Open an Account

Need Assistance? Share your Details and we’ll get back to you