1H22 Results Analysis: An uneven recovery
- 1H22 DPU -12% y-o-y to 1.08 Scts mainly due to the partial divestment of OUE Bayfront and rental reliefs; comes in below our estimates
- Key positives: i) RevPAR doubled q-o-q with the new Hilton Singapore Orchard recording 34% higher RevPAR vs pre-COVID levels, ii) tenant sales improved to c.85% of pre-COVID levels in 2Q22, iii) office rental reversions range appear to have improved
- Key negatives / factors to watch: i) OUE Bayfront saw decline in occupancy and negative reversions, ii) OUE Downtown income support ending in Jul’22, though occupancy improvements could partially offset this
- We currently have a BUY rating and TP of S$0.45
Key highlights / observations
2Q22 results were largely impacted by rental relief extended to Shanghai tenants
- 1H22 DPU fell 12% y-o-y mainly due to the partial divestment of OUE Bayfront and S$5m rental relief extended to Lippo Plaza tenants due to Shanghai lockdowns.
- 2Q22 estimated DPU fell 7% y-o-y and 12% q-o-q (DI -10% q-o-q) due to the abovementioned rental reliefs
- Hospitality segment continues to draw minimum rent despite strong improvement in RevPAR.
- Gearing remained relatively stable while average cost of debt inched up q-o-q to 3.1% from 3.0% in 1Q22.
Operational performance appears to have improved q-o-q on all segments, partially offset by impact from Shanghai lockdown
- (+) Portfolio occupancy inched up marginally to 91.3% mainly from higher occupancy at Mandarin Gallery (+1.6ppt q-o-q to 90.3%) while office held stable at 92.3%. Office portfolio saw improvement in ORP and OUE Downtown but was offset by decline occupancy at OUE Bayfront (-2.9ppt q-o-q to 96.2%) and Lippo Plaza (-3.4ppt q-o-q to 89%).
- (+/-) OUE Downtown occupancy inched up to 93% (+5.2ppt q-o-q), which could partially offset decline in income support that ends by Jul’22. Average passing rents of S$7.98psf/month is c.15% below the current rental support level. Average signing rents was S$8.17psf/month in 2Q22.
- (+) Mandarin Gallery occupancy held stable with the decline in short-term leases offset by improved ‘normal’ leases. Overall occupancy held stable q-o-q at 95.6% (95.4% in 1Q22). We note that some shorter leases have been ‘converted’ into ‘normal’ leases (+1.6ppt to 90.3%)
- (+/-) Office reversions range have improved q-o-q but we note that that OUE Bayfront recorded -3.9% reversions on high expired rents of S$14.32.
- (+) Shopper traffic and sales in Mar’22 improved to 90% and 85% of pre-COVID levels vs close to 80% in 1Q22 respectively.
- (-) Rental rebates increased due to Shanghai lockdown. OUECT extended S$5m of rental relief to its Shanghai tenants vs S$1.1m of rental rebates given out in 1Q22 and S$3.6m in 2Q21.
- (-/+) RevPAR doubled q-o-q to S$226 on par to slightly higher than pre-COVID levels led by the rebranded Hilton Singapore Orchard. Hilton Singapore Orchard RevPAR recorded S$302, 34% higher than pre-COVID RevPAR of previous Mandarin Orchard Singapore (4Q19 RevPAR was S$226).
We currently have a BUY rating and TP of S$0.45 on the stock. More details after the briefing tomorrow.