OUE Commercial Reit: Treading conservatively in rising rates period

Shawn Sng  |   21 Apr 2022  |    91 views

Company Background

With a market cap of $2.23bn as at 21 April 2022, OUE Commercial Real Estate Investment Trust (OUECT) is one of the largest diversified Singapore REITs. OUECT property portfolio comprises of seven primely located properties across the commercial (58.8%) and hospitality/retail segments (41.2%). OUECT’s portfolio mix is also mainly concentrated in Singapore with a 89.2% weightage and 10.8% in Hong Kong. The manager for OUECT is OUE Commercial REIT Management Pte. Ltd. and the sponsor is OUE Limited.

 

Revenue Breakdown

In FY2021, OUECT’s revenue have decline 14.4% YoY to $249.9mn (vs FY 2020’s $292mn). The reduction was mainly due to the deconsolidation of OUE Bayfront’s performance post divestment on a 50% interest on 31 March 2021 but was partially offset by lower property expenses and lower rental rebates on $8.5mn to retail tenants in FY2021.

  1. OUE Bayfront: 50% stake, $60.1mn in FY21 revenue
  2. One Raffles Place: 67.95% stake, $75.3mn in FY21 revenue
  3. OUE Downtown Office: 100% stake, $45.4mn in FY21 revenue
  4. Lippo Plaza: 91.2% strata interest, $25.1mn in FY21 revenue, located in prime commercial district of Huangpu in Puxi, Shanghai
  5. Mandarin Gallery: high-end retail mall, $21.2mn in FY21 revenue
  6. Hilton Singapore Orchard (Previously known as Mandarin Orchard Singapore): 1,080-room hotel, $45mn of FY21 revenue
  7. Crowne Plaza Changi Airport: 563-room hotel, 22.5mn in FY21 revenue

 

Credit Metrics as at 21 April 2022

  • Aggregate Leverage: 38.7%
  • Interest Coverage: 2.8x

 

Commentary

+ Spacing out its Average term of debt: In October FY2021, OUECT has obtained $540 million maiden sustainability-linked loan for refinancing existing borrowings. This in turn have lengthened the average term of debt from 2.3 years to 3 years, with no more than 24% of debt due for refinancing in any year.

+ Hedging over rising interest rate: According to OUECT management, in FY2021 the management has took a more conservative approach and rose their percentage in fixed rate debts from 68.1% previously to 72.4%. This is to mitigate against interest rate fluctuation.

-Uncertainty of a new Covid variant: As OUECT portfolio is mainly commercial and hospitality segment, any tightening of safety measures would definitely be a headwind for the company as this is seen previously in FY2021 Office occupancy on One Raffles Place and OUE Downtown Office have declined to 88.3% and 88.6% respectively as at 31 December 2021 due to prevailing safe management measures.

 

Summary

As safety measures starts to ease and Singapore’s office rental recovery continues, OUECT’s high quality portfolio and diversified tenant base will expect to underpin a stable performance. Nevertheless, OUECT’s property mix is still heavily weigh in the commercial and hospitality segment which is susceptible to any new potential outbreak.

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