OUE Commercial REIT 3Q2023 Business Update

On 30th October 2023, OUE Commercial REIT announced their 3Q2023 Business Update. OUE Commercial REIT is one of the largest diversified Singapore REITs with total assets of S$6.0 billion. It has seven properties across the commercial and hospitality segments in Singapore and Shanghai. The portfolio comprises of approximately 2.2 million square feet of prime office and retail space, and 1643 upper upscale hotel rooms.

REITs that have commercial and hospitality segments are benefiting from the post COVID recovery due to people going back to work and increasing tourist arrivals.

Thus, in 3Q2023, OUE Commercial REIT’s Gross Revenue and Net Property Income (NPI) increased 27.5% and 29.8% year-on-year to S$75.8 million and S$62.7 million respectively. The increase was driven by in particular the hospitality sector on the back of Singapore’s tourism sector recovery.

Debt

As of 30th September 2023, OUE Commercial REIT’s gearing stood at 39.4%. The proportion of fixed rate debt remains high at 68.0% of total debt.

Assuming a 25 basis points increase in interest rates, the impact on DPU would be 0.03 Singapore cent per unit.

OUE Commercial REIT has no refinancing needs until 2025 with the weighted average term of debt at 2.7 years as at end September 2023.

Occupancy

As at 30 September 2023, OUE Commercial REIT’s Singapore office portfolio remained healthy with committed occupancy at 95.7%. The average passing rent increased 1.3% quarter-on-quarter to S$10.35 per square foot.

On the other hand, the committed office occupancy of Lippo Plaza in Shanghai fell short even though it increased 2.1 ppt quarter-on-quarter to 88.7%. Even though the average office passing rent was stable at RMB8.48 psm/day, it is pretty disappointing to me.

For the retail segment, the committed occupancy for Mandarin Gallery stood at a high of 98.7%. Amidst improving retail sales and visitor arrivals, high rental reversion of 31.1% was recorded for 3Q 2023.

Revenue per Available Room (RevPar)

For 3Q 2023, the hospitality segment revenue per available room (“RevPAR”) increased 12.8% year-on-year to S$295.

Hilton Singapore Orchard’s 3Q 2023 RevPAR was 3.8% higher YoY at S$345 while Crowne Plaza Changi Airport’s RevPAR increased 9.6% YoY to reach S$199.

Current Dividend Yield

Based on OUE Commercial REIT’s current share price of S$0.24 and FY2022 Distribution Per Unit (DPU) of 2.12 cents, this translate to a high current dividend yield of 8.83%.

Summary of OUE Commercial REIT 3Q2023 Business Update

Based on the business update, the pros:

• Gross Revenue and Net Property Income (NPI) increased 27.5% and 29.8% year-on-year to S$75.8 million and S$62.7 million respectively.
• Ride on the back of Singapore’s tourism sector recovery.
• Gearing stood at 39.4%, below my comfort level of 40%.
• No refinancing needs until 2025.
• Singapore office portfolio remained healthy with committed occupancy at 95.7%.
• Committed occupancy for Mandarin Gallery stood at a high of 98.7%. high rental reversion of 31.1% was recorded for 3Q 2023.
• Hospitality segment revenue per available room (“RevPAR”) increased 12.8% year-on-year to S$295.
• High current dividend yield of 8.83%.

The cons are:

• Committed office occupancy of Lippo Plaza in Shanghai stood low at 88.7%.
• Falling average office passing rent even though it stood stable at RMB8.48 psm/day.

Would you buy OUE Commercial REIT since there are more positives than negatives right now?