CGS International analysts Lock Mun Yee and Natalie Ong have kept their “hold” call on OUE LJ3 REIT even though its gross revenue and net property income (NPI) for the 1QFY2024 ended March 31 stood in line with their full-year estimates.
OUE REIT’s gross revenue for the quarter, which grew by 9.5% y-o-y to $74.9 million, stood at 26.8% of Lock and Ong’s FY2024 forecast. The REIT’s NPI of $60.5 million, which rose by 6.9% y-o-y, stood at 25.4% of the analysts’ full-year estimates.
The REIT’s hospitality segment was the star performer while its commercial segment also grew steadily. At its results briefing, the REIT’s management was said to remain “beat” on the hospitality sector’s outlook from the recovery in business and leisure travellers.
During the quarter, OUE REIT’s Singapore office portfolio reported positive rental reversion of 12.6% with committed occupancy at 95.1% as at end-March.
The analysts expect this to continue, anticipating that the REIT should still enjoy positive reversions for the rest of FY2024 with the average expiring rents of $10.67 per sq ft compared to CBRE’s Grade A office market rents of S$11.95 per sq ft.
Meanwhile, Mandarin Gallery saw a 22% positive rental reversion, while its committed occupancy stood at 96.6% in 1QFY2024, note the analysts. The property’s shopper traffic has exceeded pre-Covid levels by 8% while its tenant sales are still at 85% of pre-Covid levels.
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Despite the positives, Lock and Ong have lowered their distribution per unit (DPU) estimates for the FY2024 to FY2025 by 5.54% to 6.85%. The lowered estimates were made to reflect a lower payout ratio of 92% and updated model after the REIT released its FY2023 annual report. As such, the analysts’ target price has also been lowered to 30 cents from 36 cents previously.
The analysts are remaining neutral on the REIT’s prospects due to the lack of near-term catalysts, though they see that its unit price will likely be supported by its attractive dividend yield of 7.4%.
Units in OUE REIT closed flat at 26.5 cents on April 29.
