OUE Commercial REIT (OUECT) completed enhancements for Hilton Singapore Orchard (HSO) in January 2023 and Crowne Plaza Changi Airport (CPCA) this month.
With these asset enhancement initiatives (AEI) in place, OUECT is ready to receive the rising numbers of leisure and business travellers visiting Singapore, says UOB Kay Hian Research (UOBKH).
In an unrated report dated Jan 19, UOBKH also notes that OUECT’s office portfolio is resilient, generating positive rental reversion at 18.4% and stable committed occupancy at 95.7% in 3Q2023.
CPCA completed its $22 million AEI this month. The enhancement added 12 new guest rooms, inclusive of two suites, to cater to higher-yielding long-stay guests and their families. The AEI also added a new all-day dining restaurant, Allora, offering Italian cuisine at the ground floor with direct access to and from Changi Airport Terminal 3.
CPCA also added a 352 sq m multifunction room to host a wide array of meetings and events, and the existing bar space has been transformed into a contemporary lounge with modernised space for meetings.
But HSO is OUECT’s largest revenue contributor. Mandarin Orchard Singapore was rebranded as Hilton Singapore Orchard in February 2022 and HSO was repositioned as a top luxury hotel in Singapore. It is Hilton brand’s flagship hotel in Singapore and its largest in the Asia Pacific.
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HSO underwent three years of extensive refurbishment. The 634-room Mandarin Wing was relaunched in February 2022. The 446-room Orchard Wing was reopened in January 2023. HSO has operated with a full inventory of 1,080 rooms since January 2023. Contribution from HSO is expected to surpass the minimum rent of $45.0 million in FY2023.
Positive reversions
OUECT achieved positive rental reversion of 18.4% for office lease renewals in 3Q2023. Committed occupancy was healthy at 95.7%, notes UOBKH.
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The average passing rent had increased 1.3% q-o-q to $10.35 per sq ft per month in September 2023. Mandarin Gallery’s committed occupancy improved 0.7 percentage point (ppt) q-o-q to 97.1%. The mall generated strong positive rental reversion of 31.1% due to recovery in retail sales and visitor arrivals.
OUECT is also riding on recovery in the hospitality sector, notes UOBKH. Revenue per available room (RevPAR) for the hospitality segment increased 12.8% y-o-y to $295 in 3Q2023. RevPAR for HSO expanded 3.8% y-o-y to $345 while RevPAR for CPCA jumped 9.6% y-o-y to $199.
Cost of debt and refinancing
S&P Global Ratings has assigned a BBB rating with stable outlook to OUECT and its $150 million 4.2% notes due in 2027. Under the terms and conditions of the notes, interest rate was stepped down by 25 basis points (bps) from 4.20% to 3.95% with effect from Nov 5, 2023.
OUECT’s subsidiary OUB Centre Limited has obtained an unsecured sustainability-linked loan (SLL) of $430 million to refinance existing borrowings and for general corporate purposes.
SSL accounted for 70% of its borrowings, one of the highest among S-REITs. OUECT’s weighted average term of debt has lengthened from 2.7 years to 3.2 years. It has no refinancing requirement until 2025.
OUECT has diversified exposures across the hospitality, office and retail segments, which accounted for 35%, 48% and 17% of revenue respectively, says UOBKH.
It has three office assets, two hotels and one downtown retail mall in Singapore and one office asset in Shanghai, China. “OUECT would benefit from a recovery in the hospitality sector and resilience of the office market in Singapore,” says UOBKH.
