Brokers’ take: DBS upgrades OUE C-Reit to ‘buy’ after recovery beats expectations

DBS Group Research on Tuesday (Oct 31) upgraded OUE Commercial Real Estate Investment Trust (OUE C-Reit) to “buy” from “hold”. Its target price of S$0.35 remained unchanged.

The upgrade came after the Reit posted a 29.8 per cent increase in net property income (NPI) for the third quarter ended Sep 30.

Revenue was up 27.5 per cent, following overall improvements to OUE C-Reit’s portfolio –especially when it came to hospitality – as Singapore’s tourism industry recovers post-pandemic.

The strong underlying performance resulted in a recovery which beat the research team’s expectations. It now projects OUE C-Reit to deliver core distribution per unit (DPU) of 4 per cent in FY2023.

It also expects core DPU for FY2023 to be sustainable going into FY2024, with further upside from hospitality, given the sector’s recovery and the Reit’s stable Singapore commercial portfolio. There are no refinancing risks in FY2024, DBS noted.

Its target price of S$0.35 implies a target yield of 6 per cent and is 0.6 time net asset value. It also represents a potential 55.6 per cent upside from the counter’s last trading price of S$0.225 as at 11.03 am on Tuesday. OUE C-Reit’s units were trading flat at the time.

SEE ALSO

OUE C-Reit net property income up 29.8% in Q3

OUE Commercial Reit should consider turning hospitality-centric for better valuation

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DBS said the Reit is trading at a 9 per cent yield and 0.4 time its net asset value – an attractive entry level for investors, after accounting for operational improvements. This level positions the Reit for a turn in the interest rate cycle, said DBS analysts Rachel Tan and Derek Tan.

On Monday, OUE C-Reit posted an NPI of S$62.7 million for the third quarter, from S$48.3 million the year before. Revenue rose to S$75.8 million from S$59.5 million in the same period the previous year.

When it came to the hospitality segment, NPI rose 73.2 per cent year on year to S$27 million, while revenue grew 67.6 per cent year on year to S$28.3 million. The manager attributed part of the improved performance to Hilton Singapore Orchard hotel, which was operating a total inventory of 1,080 rooms in Q3, from 634 rooms the previous year.