CGS-CIMB Research and UOB Kay Hian have had somewhat mixed reactions following OUE Commercial REIT’s (OUE C-REIT) following its 1HFY2021 ended June results release on July 29.
See: OUE C-REIT posts 23% higher DPU of 1.23 cents for 1H21
CGS-CIMB Research has kept its “hold” call for the REIT but with a higher target price of 45 cents, up from 42 cents previously. DBS Group Research, on the other hand, has kept its “buy” call and target price of 50 cents unchanged.
For CGS-CIMB analysts Lock Mun Yee and Eing Kar Mei, OUE C-REIT’s 1HFY2021 distribution per unit (DPU) of 1.23 cents came in below their expectations at 39% of their full-year forecasts.
Gross revenue and net property income for the period were 6% and 3.1% lower y-o-y respectively due to the deconsolidation of OUE Bayfront contributions post-divestment of a 50% stake in the property.
They note that OUE C-REITs office portfolio had stable occupancy of 91.7% but mixed rental reversions ranging between -5.7% to 2.2% given the higher expiry rents. “Management guided that it still expects to achieve flat- to mid-single digit positive reversions in FY2021,” the analysts say.
For its hospitality segment, Lock and Eing highlight that revenue continues to be supported by minimum rent levels under the master lease agreement while NPI grew 0.6% y-o-y due to lower property expenses. Revenue per average room also slipped q-o-q to $52.
“While we anticipate the hospitality sector recovery to be gradual, the fixed component of its master lease will provide some income stability,” they add.
The analysts have lowered their FY2021 DPU forecast by 7.8% to take into account the one-off divestment cost for OUE Bayfront and retained income but raised their FY2022-2023 DPU estimates by 1-2% to reflect a higher occupancy level for Lippo Plaza. “At the same time, we also fine-tune our cost of equity from 7.43% to 7.15% to reflect the shift in asset/geography split post-divestment of OUE Bayfront,” they add. The tweaks resulted in the higher target price of 45 cents.
DBS analysts Rachel Tan and Derek Tan have a more bullish take on OUE C-REIT, viewing that it is poised to ride on Singapore's recovery as Singapore assets contribute to around 90% of its income.
They view the REIT's 1HFY2021 results as "relatively stable", with DPU for the period in line with their estimates.
Rachel and Derek point out that the REIT’s income is bolstered by minimum rent support from its sponsor for its hospitality portfolio and OUE Downtown, which offer some buffer to the impact from Covid-19.
They also view that the REIT is currently trading at an attractive valuation. “OUE C-REIT is trading at 0.7 times P/NAV, lower compared to its peers, which is attractive while awaiting progressive recovery,” they explain.
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Rachel and Derek acknowledge that their “buy” call on the REIT contrasts with the consensus “hold”, as the market remains cautious on OUE C-REIT’s retail and hospitality portfolios which continue to be directly impacted by Covid-19.
Nonetheless, they stand firm with their sanguine outlook. “While we may be early in our positive call, and given the attractive valuations, we believe the worst is over with the start of phased reopening of the Singapore economy and progressive relaxation of travel between certain countries,” they say.
As at 4.01pm, units in OUE C-REIT are trading flat at 43.5 cents.
