CFA Society Singapore
SINGAPORE (Nov 6): OCBC Investment Research is keeping its “hold” rating on OUE Commercial REIT (OUE C-REIT) with an unchanged fair value estimate of 67 cents.
“While office rents in Singapore appear to be bottoming out, it is apparent that more time will be needed for positive rental reversions to surface,” says OCBC lead analyst Joseph Ng in a report on Nov 3.
This comes after OUE C-REIT saw its 3Q17 distribution per unit (DPU) fall 12.9% to 1.15 cents, from 1.32 cents a year ago.
Group revenue for 3Q17 declined 2.1% to $43.3 million on lower retail rental income at One Raffles Place Shopping Mall due to the ongoing rebalancing of tenant and trade mix at the mall.
Net property income was 3.5% lower at $34.1 million, mainly due to higher leasing commission stemming from an improvement in office occupancy, as well as higher tax expenses.
However, Ng says that OUE C-REIT’s 3Q results were in-line with expectations, with revenue and DPU forming 24.2% and 24.6% of the research house’s full-year forecast, respectively.
On the plus side, OUE C-REIT’s Lippo Plaza turned in a set of robust results on the back of its 100% committed office occupancy.
In its Singapore portfolio, Ng notes that the average passing rent for OUE Bayfront seems to have stabilised at $11.44 psf/month, even though committed occupancy dipped slightly to 98.2%.
Meanwhile, average passing rent at One Raffles Place was marginally lower $10.10 psf/month, but committed occupancy rose 1.6 percentage points to 95.4%.
“According to CBRE, CBD Grade A office rents rose 1.7% q-o-q to $9.10 psf/mth in 3Q17, marking the first increase in 10 quarters,” Ng says.
However, he adds that “depending on the recovery in spot rents, negative rental reversions could extend into the coming year.”
As at 4.48pm, units of OUE C-REIT are trading flat at 72 cents, implying an estimated FY17 distibution yield of 6.5%.