OUE Commercial Reit Q1 NPI rises 18% to S$56.6 million
Janice Lim
NET property income (NPI) for OUE Commercial Reit (real estate investment trust) came in at S$56.6 million in the first quarter of 2023, an 18 per cent increase from the same period a year ago.
Its revenue rose 14.9 per cent to S$68.4 million over the same period, driven mainly by higher contributions from the Reit’s Hilton Singapore Orchard and Singapore commercial properties, said its manager on Thursday (May 4).
However, higher interim interest expense due to steep interest rate hikes over the past year is expected to impact upcoming distributions in 2023, noted the manager in the bourse filing.
Han Khim Siew, chief executive officer of the Reit’s manager, said it is already in advanced discussions with banks on the early refinancing of S$263 million of borrowings which are due in September 2023, as part of its proactive balance sheet management.
Upon completion of the refinancing ahead of maturity, the average term of debt is expected to lengthen to 3.2 years from 2.7 years as at Mar 31, 2023, with no refinancing requirement until 2025, he added.
“We will continue to adopt a prudent capital management approach with a goal to deliver sustainable returns to unitholders,” said Han.
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The Reit’s commercial businesses, which include its office and retail properties, recorded a 9 per cent increase in revenue to S$46.5 million in Q1 compared to a year ago, and an 11.9 per cent jump in NPI to S$36 million over the same period. This was due to improved performance of its Singapore portfolio.
The Singapore office portfolio’s committed occupancy rose 1.2 percentage points quarter on quarter to 96.7 per cent as at Mar 31. Positive rental reversion of 6.7 per cent was recorded for office leases, while average passing rent for the portfolio rose 1.6 per cent to S$10.26 per square foot per month as at March 2023 compared to the previous quarter.
As for Mandarin Gallery, its committed occupancy was 96.4 per cent as at Mar 31. Rental reversion continued to be positive for the third consecutive quarter at 11.6 per cent.
Consequently, the average passing rent increased by 2.7 per cent quarter on quarter to S$21.34 per square foot per month. Shopper traffic was 95 per cent of pre-Covid levels in March 2023, while tenant sales came in at 87 per cent.
However, tepid leasing activity due to occupiers turning cautious in view of the uncertain economic outlook, as well as strong leasing competition among landlords, caused committed office occupancy at Shanghai Lippo Plaza to decline by 4.7 percentage points quarter on quarter to 75.2 per cent as at Mar 31.
As for the Reit’s hospitality segment, revenue for the quarter was 30 per cent higher at S$21.9 million in Q1 2023 compared to a year ago. NPI also rose 30.5 per cent on year to S$20.5 million.
The segment’s revenue per available room doubled to S$227 over the same period a year ago on the back of higher room rates supported by the ongoing recovery in the tourism sector.
As the recovery momentum in Singapore’s office space is showing signs of moderation in the quarter over uncertainties within the technology and banking sectors, the Reit manager said rents are expected to remain stable amid cautious occupier sentiment, supported by tight future supply.
Its portfolio of offices and well-diversified tenant base are expected to underpin stable performance in 2023, the manager noted.
Turning to retail, the Reit manager said retail leasing activity remains strong in Q1.
While retailers continue to face labour shortages, higher operating costs, competition from e-commerce and a slowing economy, overall retail rents are expected to remain on the recovery path in 2023 with improved mobility, tourism recovery and below-historical average new retail supply over the next few years, it added.
Units of OUE Commercial Reit rose 1.5 per cent or S$0.005 to close at S$0.33 on Thursday.
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