SINGAPORE (May 5): The manager of OUE Commercial REIT (OUE C-REIT) has declared a distributable income of $37.6 million for 1Q2020 ended March, a 44.5% increase y-o-y from last year’s $26.0 million.

The REIT did not report a DPU for this quarter, as they will be distributing the DPU to unitholders on a semi-annual basis. The Manager will review the REIT’s financial results collectively for 1H2020 to determine the actual DPU.

Gross revenue for the period was $77.7 million, a 40.5% increase from last year’s $55.3 million. This is mainly due to contributions from Mandarin Gallery, Mandarin Orchard Singapore, and Crowne Plaza Changi Airport from the merger with OUE Hospitality Trust (OUE H-Trust) in 2019.

Net property income (NPI) was booked at $62.1 million for both its commercial and hospitality properties such as One Raffles Place, OUE Bayfront, Mandarin Orchard, and Crowne Plaza Changi Airport. Property operating expenses grew 33.1% to $15.7 million.

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Its hospitality portfolio’s revenue looks set to be hit in the next quarter due to heightened travel restrictions imposed since January 2020, as well as stricter social distancing and circuit breaker measures in April 2020. This saw a significant fall in tourist arrivals, as well as postponement and cancellation of planned meetings, incentives, conferences, and exhibitions (MICE) and social events.

1Q 2020 revenue per available room (RevPAR) at Mandarin Orchard Singapore declined 47.7% to $110, while Crowne Plaza Changi Airport recorded a decline of 23.9% to $141. Revenue for the hospitality segment in 1Q 2020 was at minimum rent of S$16.9 million.

Beyond its hospitality arm, its office revenue, retail, and office and retail arm in Shanghai, has been impacted by the Covid-19 pandemic due to disruption in leasing activities, social distancing measures, and extended office closures and shorter retail mall’s operating hours respectively.

“OUE C-REIT started the year on solid ground, however the COVID-19 pandemic has caused an unprecedented public health and socio-economic crisis. Businesses have been disrupted due to the various measures implemented to contain community spread,” says Lee Yi Shyan, chairman of the board of the manager.

“To help to cushion the impact on our tenants’ businesses in these challenging times, we have provided various relief measures to our tenants, which we believe serve the long-term interests of all stakeholders,” he adds.

The measures, which come up to approximately $18.8 million, includes the full pass-through of property tax rebates from the government to its commercial and hotel properties, full rental waiver for April 2020 to eligible tenants, flexible rental payment schemes for eligible tenants, and other relief measures depending on individual tenants’ needs.

OUE C-REIT has maintained a healthy 94.3% for its overall commercial segment committed occupancy as at March 31, with increased committed office occupancy at OUE Bayfront and OUE Downtown Office. Mandarin Gallery’s committed occupancy recorded a slight decrease of 0.5 percentage points q-o-q to 97.8%.

The REIT continues to record positive rental reversions across its Singapore office properties in 1Q2020, ranging from 7.9% to 16.7%.

Fourteen per cent of OUE C-REIT’s commercial segment gross rental income is due for renewal in 2020, with a further 28.5% due in 2021. 

As at March 31, the REIT’s commercial segment has a weighted average lease expiry (WALE) of 2.1 years by net lettable area (NLA), and 2.4 years by gross rental income.

The WALE for Mandarin Gallery stands at 2.2 years (NLA), and 2.9 years by gross rental income as at March 31.

OUE C-REIT’s other asset, tenants in Lippo Plaza, a Grade A commercial building with a retail podium located in the Huangpu business district in Shanghai, will receive support measures according to relevant government advisories.

Lippo Plaza’s committed office occupancy declined 4.1 percentage points q-o-q to 85.8% as at March 31, in line with overall Shanghai CBD Grade A office occupancy of 85.4% for the same period.

Despite the drop in hospitality revenue, OUE C-REIT has lined up several plans for its hospitality portfolio in the year ahead to drive growth in sustainable returns and value, and take advantage of the weak operating environment due to Covid-19.

This includes a re-branding of Mandarin Orchard Singapore to Hilton Singapore Orchard in 2Q2020 to capitalise on the low traffic due to Covid-19. This will allow Mandarin Orchard to leverage on Hilton’s “strong brand recognition and global sales and distribution network”, tap on “longer term growth drivers in Singapore’s hospitality industry” with the addition of new meeting spaces, as well as drive more direct booking businesses on the back of Hilton’s strong loyalty programme.

The re-branded hotel, which is expected to re-launch in 2022, will become Hilton’s flagship in Singapore, and the largest Hilton hotel within the Asia-Pacific region. OUE C-REIT will invest $90.0 million on renovations, and expects to receive a stable return on investment of about 10%.

The minimum rent embedded of $45.0 million per annum within the hotel master lease arrangement will provide downside protection throughout the phased renovation and ramping-up period. 

In its outlook, OUE C-REIT expects negative impacts to hit its commercial and hospitality segments, especially its hospitality and retail sectors, as well as its Shanghai property. 

“While we are pleased to report a healthy 1Q 2020 operational performance for our commercial segment which is the major contributor to OUE C-REIT’s revenue, the COVID-19 situation is still evolving and there remains uncertainty as to when businesses can resume normal operations,” says Tan Shu Lin, CEO of the manager.

“In terms of asset management, our focus is on tenant retention to sustain occupancy. We have also employed various strategies to manage our cashflow and maintain financial flexibility, with a focus on cost management and cash conservation,” she adds.

On the re-branding of Mandarin Orchard Singapore as Hilton Singapore Orchard, Tan says “this will better position the hotel, which already enjoys a prime Orchard Road location, to benefit from the expected recovery in the Singapore hospitality sector once travel confidence resumes”.

Units in OUE C-REIT closed 1.5 cents higher, or 3.9% up, at 40 cents.