OUE Commercial Reit's Q1 net property income dips due to rental rebates

OUE Commercial Reit (OUE C-Reit) on Tuesday posted a 1.6 per cent drop in its first-quarter net property income to S$61.1 million, due to provision for rental rebates to some retail tenants, partially offset by lower property operating expenses.

Lower interest expense pushed up its amount available for distribution by 2.7 per cent to S$37.1 million. For the three months ended March 31, 2021, revenue fell 3.9 per cent to S$74.7 million. It did not announce its distribution per unit for the quarter.

Tan Shu Lin, chief executive of the manager, said: "While we provided rental rebates to selected retail tenants who continued to face challenges due to restrictions on short-term visitors and operating capacity, the quantum for the first half of 2021 is expected to be lower compared to the prior half-year.

"With more employees returning to the workplace recently due to the easing of Covid-19 safe-management measures, we are encouraged by the improvement in both traffic and tenant sales at One Raffles Place Shopping Mall and will continue to monitor the situation closely."

For Q1, the office and retail segment reported revenue and net property income of S$57.8 million (down 5 per cent), and S$45.7 million (down 3 per cent), respectively. In all, S$2.6 million of rental rebates were extended to retail tenants in the quarter, as challenges remain for businesses dependent on short-term visitors and office-based employees.

In its business update, the Reit manager also noted that its Singapore office properties continued to achieve positive rental reversions between 0.8 per cent and 7.2 per cent in Q1, and a committed occupancy of 93.7 per cent as at end-March 2021.

However, in Shanghai, Lippo Plaza's committed office occupancy fell 3.3 percentage points from the previous quarter to 83.2 per cent due to intense leasing competition amid increasing supply.

At Mandarin Gallery in Singapore, the committed occupancy improved 0.5 percentage points from Q4 last year to 91.6 per cent; including short-term leases, the committed occupancy was 97.1 per cent. In view of headwinds facing the prime retail segment, the manager plans to continue adopting flexible leasing strategies to sustain its occupancy.

Its hospitality segment generated a revenue of S$16.9 million in Q1 - which is also the minimum rent under the master lease arrangements of the hotel properties in its portfolio. Net property income was 3 per cent higher year on year at S$15.4 million, due to lower property operating expenses.

The Reit had announced the divestment of a 50-per-cent interest in OUE Bayfront in Q1, achieving an agreed value which was 7.3 per cent and 26.1 per cent above its end-2020 book value and purchase consideration for the property at listing, respectively.

Of the net divestment proceeds of about S$262.6 million, S$155 million will be used to redeem convertible perpetual preferred units to optimise OUE C-Reit's capital structure; another S$15 million will be set aside to share divestment gains with unitholders, it said.

The balance will be applied towards other "value-enhancing options" to drive returns for unitholders," it added.

OUE C-Reit's aggregate leverage as at March 31, 2021 was 40.4 per cent, on total debt of about S$2.34 billion.

As part of the divestment of 50 per cent of OUE Bayfront, the loan attributable to the property, due in 2022, was refinanced ahead of expiry with a new five-year facility. As a result, OUE C-Reit's term of debt increased to 2.8 years as at end-March 2021, from 2.3 years in the previous quarter.