Brokers’ take: CGS-CIMB cuts OUE C-Reit target amid H1 DPU miss, potentially higher borrowing costs
Sharanya Pillai
CGS-CIMB has lowered its target price for OUE Commercial Reit to S$0.39 from S$0.43, as the research house lowered its distribution per unit (DPU) estimates on the back of higher cost of borrowing assumptions.
In a research note on Wednesday (Jul 27), analyst Lock Mun Yee reiterated her “hold” call on the counter. The Reit’s DPU of S$0.0108 for H1 ended June missed CGS-CIMB’s expectations, coming in at 39.9 per cent of its FY2022 forecast.
H1 net property income of S$93.6 million likewise came in at 47.2 per cent of the research house’s estimate for FY2022. Performance took a hit from S$5 million in rental rebates at Lippo Plaza amid Shanghai’s lockdowns from April to May, as well as the deconsolidation of OUE Bayfront.
While Hilton Singapore Orchard has had a “remarkable ramp-up” in operations since March, Lock believes that it will generate minimum rents for FY2022, given the reduced room inventory for the year.
Meanwhile, Lippo Plaza saw occupancy dip from 91.6 per cent to 87.7 per cent, as a tenant opted not to renew its lease due to business uncertainties. Leasing activity was also hindered during the Shanghai lockdowns, she highlighted.
That said, Lock noted that OUE Commerical Reit’s hospitality and retail portfolio could see strong recovery, with healthier office occupancy and limited supply giving it the ability to drive rents.
For instance, Mandarin Gallery’s occupancy rose 1.6 percentage points quarter-on-quarter to 90.3 per cent, with shopper traffic and sales at 90 per cent and 85 per cent of pre-Covid levels respectively. OUE Downtown saw occupancy improve to 93 per cent, from 87.8 per cent, with the signing of a large tenant, while One Raffles Place’s occupancy was stable quarter on quarter at 95.6 per cent, she noted.
Units of OUE Commercial Reit were trading flat at S$0.39 as of 10.44 am on Wednesday.
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