SINGAPORE (Mar 23): CIMB says the asset enhancement initiative (AEI) for One Raffles Place (ORP) is likely to improve the mall’s shopper circulation, as well as create more open retail areas with better visibility.

The other is the prospect of greater earnings visibility for OUE Commercial REIT (OUE C-REIT) through a longer-than-current-average lease term while having a larger single tenant which could optimise property management resources.

“We think there may be potential for some boost in overall space utilisation as well,” says analyst Lock Mun Yee in a Thursday report.

This came on the back of the REIT announcing that One Raffles Place (ORP) will be undergoing an asset enhancement initiative (AEI) to revitalise the mall with a more diverse and dynamic tenant mix.

In conjunction with the AEI, OUE C-REIT will also be launching a co-working space tenant that will occupy 35,000 sq ft of the mall in early 2019, further complementing business traffic and synergy of the mall, which currently attracts a high shopper traffic of about 1 million per month.

See: One Raffles Place to undergo AEI with launch of co-working space

The co-working space, Spaces, is a concept by International Workplace Group (IWG), an international provider of flexible working solutions, will launch its flagship site in Singapore at ORP.

Apart from being able to host the usual start-up companies, Spaces will also be able to host and launch retail and fashion-related events within a mall setting.

In a Thursday report, analyst Lock Mun Yee says, “We envisage this Spaces co-working location as a focal point for flexible workspaces given its advantageous location in the heart of Raffles Place.”

Meanwhile, no other details regarding the AEI have been shared, but the analyst sees two possible positives from this transaction.

The AEI works is scheduled to start in mid-2018 and will be done in phases to minimise disruptions.

Hence, the analyst does not anticipate significant frictional vacancy to the current occupancy of 86.4% during the AEI period.

The AEI capex however has not been articulated, but the management guided it to be funded through internal resources, which leads the analyst to expect gearing to remain close to current levels of 40.3% post the redemption of CPPUs in Jan 2018.

CIMB is maintaining its “hold” call on OUE C-REIT with a target price of 75 cents.

As at 12.40am, units in OUE C-REIT are trading at 72 cents, or 0.57 times FY18 book value with a dividend yield of 6.26%.