OUE Commercial REIT 2H2020 Results

OUE Commercial REIT

OUE Commercial REIT has released its 2H2020 financial results on 28 January 2021. At this point of writing, unitholders would already seen the distribution being paid into your bank account.

Due to my busy work schedule, I was not able to look at OUE Commercial REIT’s performance when the financial results are released last month. I thought I should take a look since part of OUE Commercial REIT business is the hospitality sector whereby tourism has been badly hit by the COVID-19 pandemic. How is the REIT doing after 1 year on from the onset of the pandemic?

Let us take a look at the financial results below.

Gross revenue for 2H2020 declined slightly by 0.1% to S$150 million.

Net property income in 2H2020 was lower YoY due mainly to rental rebates granted to retail tenants to cushion the impact of business disruption due to COVID-19.

S$3.0 million was held for ongoing working capital purposes and S$5.8 million of distribution retained earlier in 1H 2020 was released. As a result, 2H2020 distribution is S$78.4 million,
translating to a DPU of 1.43 cents which was 12.3% lower as compared to 2H2019.

OUE Commercial REIT 2H2020 Financial Results

2H2020
(S$’mil)
2H2019
(S$’mil)
Change
Gross Revenue 150.0 150.1 (0.1)%
Net Property Income 119.4 120.6 (1.0)%
Amount available for Distribution 75.5 76.1 (0.8)%
Ongoing working capital requirements (3.0) (1.5)
Distribution Released 5.8
Distribution to Unitholders 78.4 74.6 5.0%
Distribution Per Unit (“DPU”) (cents) 1.43 1.63 (12.3)%

Debt

Aggregate leverage increased to 41.2% as at 31 December 2020. OUE Commercial REIT has obtained S$900 million of facilities in December 2020 and successfully refinanced S$450 million of debt due in December 2021. There is still around 14% of debt due for refinancing in 2021 which should not be much of a concern.

Occupancy

The commercial portfolio occupancy stood healthy at 92.5% as of 31 December 2020. However, this was lower as compared to occupancy of 95.2% in December 2019.

OUE Commercial REIT Commercial Occupancy 2H2020

Average Passing Rent

Average passing office rent largely stable for Singapore office properties. OUE Downtown Office passing rent increased 6.5% QoQ to S$7.92 psf due to a significant lease renewal.

Average passing office rent for Lippo Plaza declined to RMB9.39 psm/day due to intense leasing competition amidst significant office supply.

Average retail rent at Mandarin Gallery remained stable.

OUE Commercial REIT Average Passing Rent 2H2020

RevPar

The COVID-19 pandemic hits the RevPar significantly. This is because borders are closed and there is no demand.

For FY 2020, Mandarin Orchard Singapore’s RevPAR declined 65.4% YoY to S$75, while RevPAR for Crowne Plaza Changi Airport declined 39.8% YoY to S$118. Crowne Plaza Changi Airport performed better as it was able to serve the air crew and aviation segment due to its location in the airport vicinity.

The good news is for 4Q 2020, RevPAR for Crowne Plaza Changi Airport higher. This was mainly due to additional demand from the air crew segment as more flights resume. While staycations enjoy higher room rates, contribution from this segment is small due to limited capacity due to safe management measures.

OUE Commercial REIT RevPar 2H2020

Current Dividend Yield

Based on a full year DPU of 3.31 cents paid in FY19 and current share price of S$0.37, this translate to a current dividend yield of 8.95% which is a historical high yield.

OUE Commercial REIT Share Price 26 Feb 2021

Summary

The share price and DPU of OUE Commercial REIT remains depressed due to the impact of COVID-19 pandemic which has hit its hospitality businesses hard. We can see slight recovery in the latest quarter as some flights resume.

Even though the current dividend yield is at historical high, investors should be caution of the risks involved such as prolonged closure of international borders.

With vaccines rolling out in various countries, let us hope tourism industry can be revived soon.

OUE Commercial REIT 1Q2020 Financial Results

OUE Commercial REIT

OUE Commercial REIT (OUE C-REIT) has increased its market capitalisation from S$1.3 billion to S$3.0 billion after its merger OUE Hospitality Trust. The REIT now sits at position 12 in terms of ranking by market capitalisation.

On 5th May 2020, OUE Commercial REIT has released its 1Q2020 financial result. How does OUE Commercial REIT fare after its merger, especially during the COVID-19 pandemic?

Gross Revenue increased by 40.5% to S$77.7 million. Net Property Income (“NPI”) also increased 42.5% to S$62.1 million. The amount for distribution was S$37.6 million. However, no distribution per unit (“DPU”) was declared because OUE Commercial REIT has changed its distribution frequency to a semi-annual basis.

Below is the 1Q2020 financial results.

1Q2020 Financial Results

1Q2020
(S$’mil)
1Q2019
(S$’mil)
YoY(%)
Gross Revenue 77.7 55.3 40.5%
Net Property Income 62.1 43.6 42.5%
Distributable Amount  37.6 26.0 44.5%

Occupancy

As you can see below, the occupancy for its commercial portfolio stood healthy at 94.3%.

OUE Commercial REIT Occupancy 1Q2020

Below is the average passing rent for the offices. I can see that passing rent is improving for its Singapore offices. The passing rent for its Shanghai offices as on a decline last quarter but has improved slightly in this quarter.

OUE Commercial REIT Passing Rent 1Q2020

Revenue Per Available Room (RevPAR)

For the hospitality portfolio, we will now look at the RevPAR which is used to measure its hotel performance.

As we can see below, RevPAR fell dramastically. This is due to strict travel restrictions imposed from end January 2020. There was significant loss of demand from tourist arrivals as well as postponement and cancellation of planned MICE and social events. Although there was replacement demand from those on self-isolation as well as workers affected by border shutdowns, the operating environment remained weak.

The RevPAR at Mandarin Orchard Singapore declined 47.7% to S$110. Crowne Plaza Changi Airport recorded a decline of 23.9% to S$141.

OUE Commercial REIT 1Q2020 RevPAR

Debt

The current gearing ratio stood at 40.2%. I still find this on the high side even though there was a decline as compared to 40.3% in 4Q2019.

Current Dividend Yield

Based on the current share price of S$0.40 and FY19 full year distribution of 3.31 cents, this translate to a current dividend yield of 8.23%.

OUE Commercial REIT Share Price 6 May 2020

Summary

In view of the COVID-19 pandemic, OUE Commercial REIT seems to be holding up well. The merger has proved to be beneficial. As you can see below, the office segment contributes 59.4% in terms of revenue. Retail segment and Hospitality segment makes up 18.9% and 21.7% respectively.

The increasing passing rent of its office portfolio can cushion the loss of revenue from its retail and hospitality segment which is badly impacted by COVID-19 pandemic.

While we can’t conclude the occupancy of the offices will not be impacted by the COVID-19 pandemic totally, having diversified asset types have proven to improve the resiliency of OUE Commercial REIT.

OUE Commercial REIT Revenue Contribution By Asset

OUE Commercial REIT is now trading at an attractive current dividend yield of 8.23%. I am expecting the estimated dividend yield of 2020 to be lower given the lower contribution from the retail and hospitality segment but it should still hold up well as compared to other REITs with pure hospitality assets.

OUE Commercial REIT makes up 3.15% of my stock portfolio.