Research from SooChow CSSD Capital Markets (Asia), SCCM Asia Research

SCCM Asia Research

Research from SooChow CSSD Capital Markets (Asia)

Headquartered in Singapore, SooChow CSSD Capital Markets (Asia) is an investment bank focusing on emerging growth companies across Asia, providing a full suite of investment banking services, including corporate finance, mergers and acquisitions advisory, equity capital markets, institutional equities sales and trading and equities research.

SooChow CSSD Capital Markets (Asia)

Thematic (Sector/Industry)

<ul><li><a href="https://www.smartkarma.com/entities/lhn-ltd" target="_blank" data-smartkarma-citation="entities:27234" rel="noopener">LHN Ltd (LHN SP)</a> 1H22 PATMI +117.4% YoY; More Co-living properties will be launched in 2H22</li><li><a href="https://www.smartkarma.com/entities/ec-world-reit" target="_blank" data-smartkarma-citation="entities:22842" rel="noopener">EC World Reit (ECWREIT SP)</a> 1Q22 DPU -9.7% YoY; Timing difference in pre-termination compensation received</li><li><a href="https://www.smartkarma.com/entities/oue-commercial-real-estate-investment-trust" target="_blank" data-smartkarma-citation="entities:912" rel="noopener">OUE Commercial REIT (OUECT SP)</a> 1Q22 Business Updates – RevPAR recovery appears slow and Commercial occupancy remains flattish at low 90%</li></ul>

LHN Ltd (LHN SP) 1H22 PATMI +117.4% YoY; More Co-living properties will be launched in 2H22EC World Reit (ECWREIT SP) 1Q22 DPU -9.7% YoY; Timing difference in pre-termination compensation receivedOUE Commercial REIT (OUECT SP) 1Q22 Business Updates – RevPAR recovery appears slow and Commercial occupancy remains flattish at low 90%

ASEAN Builder's Scoop (13May22) - LHN Co-Living Bearing Fruits

<ul><li><a href="https://www.smartkarma.com/entities/ascendas-real-estate-investment-trust" target="_blank" data-smartkarma-citation="entities:39" rel="noopener">Ascendas Real Estate Investment Trust (AREIT SP)</a> to acquire 7 logistics properties in Chicago, USA at ~5.3% NPI yield</li><li><a href="https://www.smartkarma.com/entities/oue-commercial-real-estate-investment-trust" target="_blank" data-smartkarma-citation="entities:912" rel="noopener">OUE Commercial REIT (OUECT SP)</a> looking to acquire office assets in Sydney, Melbourne, and London</li><li>The SGD strengthening to keep SREITs resilient after travel rebound</li></ul>

Ascendas Real Estate Investment Trust (AREIT SP) to acquire 7 logistics properties in Chicago, USA at ~5.3% NPI yieldOUE Commercial REIT (OUECT SP) looking to acquire office assets in Sydney, Melbourne, and LondonThe SGD strengthening to keep SREITs resilient after travel rebound

ASEAN Builder's Scoop (10May22) - AREIT Buys 7 Logistics Props in Chicago at ~5.3% Yield

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Event-Driven

Mapletree North Asia Commercial Trust / Event-Driven

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<a href="https://www.smartkarma.com/entities/mapletree-commercial-trust" target="_blank" data-smartkarma-citation="entities:106:1" rel="noopener">Mapletree Commercial Trust (MCT SP)</a>’s EGM, <a href="https://www.smartkarma.com/entities/mapletree-north-asia-commercial-trust" target="_blank" data-smartkarma-citation="entities:5127:1" rel="noopener">Mapletree North Asia Commercial Trust (MAGIC SP)</a>/MNACT’s EGM and trust scheme meeting will take place on 23 May. The effective date is 8 August.</li>
<li>The IFA considers the scheme consideration to be fair. We think that IFA’s valuation approach is broadly sound with some areas for improvement. </li>
<li>For a 17 August payment, the gross and annualised spread of the cash-only consideration (including permitted clean-up DPU) is 1.6% and 5.6%, respectively. </li>
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Mapletree Commercial Trust (MCT SP)’s EGM, Mapletree North Asia Commercial Trust (MAGIC SP)/MNACT’s EGM and trust scheme meeting will take place on 23 May. The effective date is 8 August.
The IFA considers the scheme consideration to be fair. We think that IFA’s valuation approach is broadly sound with some areas for improvement. 
For a 17 August payment, the gross and annualised spread of the cash-only consideration (including permitted clean-up DPU) is 1.6% and 5.6%, respectively. 


MNACT's Scheme Meeting on 23 May, IFA Opinion

SGX Market Strategist, Equity & Fixed Income, Singapore Exchange Ltd (SGX)

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

Asia’s leading multi-asset exchange

Singapore Exchange Ltd (SGX)

Singapore Exchange is Asia’s leading and trusted market infrastructure, facilitating the exchange of capital and ideas to create value for people, businesses and economies. As a multi-asset exchange operating equity, fixed income and derivatives markets to the highest regulatory standards, SGX is a vertically integrated business that provides listing, trading, clearing, settlement, depository and data services.

With about 40% of listed companies and over 80% of listed bonds originating outside of Singapore as well as established linkages across the region and in Europe, SGX is Asia’s most international and connected exchange. Offering a full suite of derivatives products across Asian equity indices, commodities and currencies, SGX is the world’s most liquid international market for the benchmark equity indices of China, India, Japan and ASEAN.

As Asia’s pioneering central counterparty, SGX is globally recognised for its risk management and clearing capabilities, and was one of the first globally to adopt the Principles for Financial Market Infrastructure.

Headquartered in AAA-rated Singapore, SGX has over 800 employees including offices in Beijing, Chicago, Hong Kong, London, New York, Mumbai, San Francisco, Shanghai and Tokyo.

Equity Bottom-Up

<div><em><strong>Non- SGX Report: These equity research reports are not written by the SGX.</strong>&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.</em></div>
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<h2>OUE Commercial REIT</h2>
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<p>PRICE PERFORMANCE</p>
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<h3>COMPANY DESCRIPTION</h3>
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<p>OUE Commercial Real Estate Investment Trust (collectively defined herein as OUE C-REIT) is a real estate investment trust listed on the Mainboard of Singapore Exchange Limited (SGX) since 27 January 2014. It has a portfolio of seven properties across the commercial and hospitality segments in Singapore and Shanghai. OUE C-REIT's property portfolio comprises more than 2.0 million square feet of prime office and retail space and 1,640 upscale hotel rooms.</p>
<h3>SUMMARY</h3>
<p>For the financial year ended 31 December 2021 (FY2021) OUE C-REIT recorded revenue of S$249.9 million, a 14.4% decrease from S$292.0 million over the same period a year ago. Net property income (NPI) also decreased by 11.9% from S$231.9 million in FY2020 to S$204.2 million in FY2021. This was mainly due to the deconsolidation of OUE Bayfront’s performance post the divestment of a 50% interest in the property on 31 March 2021. Meanwhile, due to the redistribution of S$5.0 million retained in FY2020 and S$5.4 million capital gain distribution from the divestment of OUE Bayfront, amount to be distributed increased by 6.9% yoy to S$142.0 million in FY2021. This led to a distribution per unit (DPU) of 2.60 cents for FY2021. For the second half of 2021 (2H2021), OUE C-REIT declared a dividend of 1.37 cents per unit to be paid on 30 March 2022. Further, the total return attributable to unitholders and CPPU holder amounted to S$38.9 million, translating to an earnings per share of 0.67 cents for FY2021.</p>
<h3>RECOMMENDATION</h3>
<p>Based on OUE C-REIT reported NAV of S$0.57, OUE C-REIT currently has a P/B multiple of 0.71x and is trading at a discount of approximately 29% to NAV. Our peer comparison results show that OUE C-REIT could be undervalued, given a lower P/B of 0.71x compared to its peer average P/B of 0.86x. In addition, we note that OUE C-REIT is relatively attractive in terms of dividend yield. Adopting a relative valuation approach, we estimate a target price of S$0.490 and S$0.515 based on our P/B and dividend yield peer comparison analysis. By taking the average of the estimated target price of S$0.490 and S$0.515, we derived an estimated target price of S$0.503 based on our peer comparison analysis. Further, according to our Dividend Discount Model (DDM) analysis, with a cost of equity of 5.83% and a terminal growth of 1.00%, we derived an estimated target price of S$0.528. Given the above, we estimate a target price of S$0.516, which is the average of the estimated target price from our peer comparison and DDM analysis. This target price is a 27.41% upside from the current share price of S$0.405. We believe this upside could be justified by a potential improvement in OUE C-REIT’s earnings as supported by the positive outlook of Singapore’s economy, potential growth in office rental and the improvement in hospitality sector. Further, the re-branding of Hilton Singapore Orchard could also underpin revenue and profit growth. Given the above, we believe a buy recommendation is warranted on OUE C-REIT.</p>
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Non- SGX Report: These equity research reports are not written by the SGX.&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.






OUE Commercial REIT




PRICE PERFORMANCE




COMPANY DESCRIPTION




OUE Commercial Real Estate Investment Trust (collectively defined herein as OUE C-REIT) is a real estate investment trust listed on the Mainboard of Singapore Exchange Limited (SGX) since 27 January 2014. It has a portfolio of seven properties across the commercial and hospitality segments in Singapore and Shanghai. OUE C-REIT's property portfolio comprises more than 2.0 million square feet of prime office and retail space and 1,640 upscale hotel rooms.
SUMMARY
For the financial year ended 31 December 2021 (FY2021) OUE C-REIT recorded revenue of S$249.9 million, a 14.4% decrease from S$292.0 million over the same period a year ago. Net property income (NPI) also decreased by 11.9% from S$231.9 million in FY2020 to S$204.2 million in FY2021. This was mainly due to the deconsolidation of OUE Bayfront’s performance post the divestment of a 50% interest in the property on 31 March 2021. Meanwhile, due to the redistribution of S$5.0 million retained in FY2020 and S$5.4 million capital gain distribution from the divestment of OUE Bayfront, amount to be distributed increased by 6.9% yoy to S$142.0 million in FY2021. This led to a distribution per unit (DPU) of 2.60 cents for FY2021. For the second half of 2021 (2H2021), OUE C-REIT declared a dividend of 1.37 cents per unit to be paid on 30 March 2022. Further, the total return attributable to unitholders and CPPU holder amounted to S$38.9 million, translating to an earnings per share of 0.67 cents for FY2021.
RECOMMENDATION
Based on OUE C-REIT reported NAV of S$0.57, OUE C-REIT currently has a P/B multiple of 0.71x and is trading at a discount of approximately 29% to NAV. Our peer comparison results show that OUE C-REIT could be undervalued, given a lower P/B of 0.71x compared to its peer average P/B of 0.86x. In addition, we note that OUE C-REIT is relatively attractive in terms of dividend yield. Adopting a relative valuation approach, we estimate a target price of S$0.490 and S$0.515 based on our P/B and dividend yield peer comparison analysis. By taking the average of the estimated target price of S$0.490 and S$0.515, we derived an estimated target price of S$0.503 based on our peer comparison analysis. Further, according to our Dividend Discount Model (DDM) analysis, with a cost of equity of 5.83% and a terminal growth of 1.00%, we derived an estimated target price of S$0.528. Given the above, we estimate a target price of S$0.516, which is the average of the estimated target price from our peer comparison and DDM analysis. This target price is a 27.41% upside from the current share price of S$0.405. We believe this upside could be justified by a potential improvement in OUE C-REIT’s earnings as supported by the positive outlook of Singapore’s economy, potential growth in office rental and the improvement in hospitality sector. Further, the re-branding of Hilton Singapore Orchard could also underpin revenue and profit growth. Given the above, we believe a buy recommendation is warranted on OUE C-REIT.


















(Non-SGX Report) OUE Commercial REIT - PRICE PERFORMANCE

Far East Hospitality Trust / Equity Bottom-Up

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    <div class='content-caption'>Top 10 performing SREITs</div>
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<p>Singapore announced the easing of Covid-19 measures on March 24 as the country takes a "decisive but measured step forward" towards living with Covid-19.</p>

<p>With the risk of outdoor transmission significantly lower, it will soon be optional to wear masks outdoors in Singapore while the maximum group size for social gatherings as well as dining in will double from 5 to 10. Certain large-scale social gatherings are also permitted to resume.</p>

<p>Office spaces are expected to be filled up again, as up to 75 per cent of those who can work from home are now allowed to return to their workplaces, up from 50 per cent previously.<br><br>
Cross-border travel is also expected to ease substantially from Apr 1, as travellers no longer have to take designated vaccinated travel lanes (VTL) to enter Singapore quarantine-free.<br><br>
Such moves will help to "reconnect Singapore with the world" and "give a much-needed boost to businesses, particularly the tourism sector, and help Singapore reclaim its position as a business and aviation hub" said Prime Minister Lee Hsien Loong during his speech.<br><br>
Following the announcement, the Straits Times Index (STI) gained 1.1 per cent during Thursday's (Mar 24) trading session, driven by a rally in aviation, transport, tourism and retail-related stocks.<br><br>
Similarly, S-Reits recorded gains, with the iEdge S-Reit Index increasing 1 per cent in the trading session, led by trusts with significant exposure to Singapore related retail, hospitality, and office assets.</p>

<p>Hospitality S-Reits gained 3.5 per cent while retail S-Reits gained 1.5 per cent. More notably, hospitality and retail S-Reits saw a surge in trading activities on Thursday with S$27.4 million and S$21.4 million in traded value respectively.</p>

<p>This represents over 211 per cent and 58 per cent increases respectively, against their 3-month average daily traded value.<br><br>
Diversified S-REITs also gained an average of 1.8 per cent over Thursday, led by trusts (Lendlease Global Commercial REIT, OUE Commercial REIT and Suntec REIT) with substantial exposure to the retail and office segments in Singapore.<br><br>
Lendlease Global Commercial Reit (LReit), which owns prime retail properties in Singapore and grade-A office buildings in Milan, was the top performer for the day with over 7 per cent gains.<br><br>
In February, LReit proposed to acquire the remaining interest in JEM mall for close to S$2 billion.<br><br>
LReit expects the acquisition to further boost the Reit's portfolio income diversification and provide approximately 10.5 per cent distribution per unit (DPU) accretion upon completion.<br><br>
Post-acquisition, LReit's exposure to the resilient suburban retail sector is expected to increase from 16.3 per cent to 46.8 per cent and its Singapore-centric asset base to be close to 88 per cent of its total portfolio value.<br><br>
CDL Hospitality Trusts (CDLHT), which owns hotel properties across Asia Pacific and Europe, rose 6 per cent over the trading day following the announcement of easing travel restrictions.<br><br>
CDLHT's Singapore portfolio (approximately 64.9 per cent by total portfolio valuation) continued to be impacted by the absence of major meetings, incentives, conferences, and exhibitions (MICE) events, large wedding banquets and social functions in FY 2021.</p>

<p>The trust remains optimistic in Singapore's commitment to reopening and returning to normalcy.<br><br><strong><em>REIT Watch is a weekly column on The Business Times,<a href="https://www.businesstimes.com.sg/companies-markets/green-shoots-for-retail-and-hospitality-s-reits-amid-new-pandemic-phase"> </a><a href="https://www.businesstimes.com.sg/companies-markets/retail-hotel-office-s-reits-gain-with-relaxed-covid-rules-0">read</a><a href="https://www.businesstimes.com.sg/companies-markets/pure-play-china-s-reits-record-strong-2021-growth-0"> </a>the original version.</em></strong></p>
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    Top 10 performing SREITs


Singapore announced the easing of Covid-19 measures on March 24 as the country takes a "decisive but measured step forward" towards living with Covid-19.

With the risk of outdoor transmission significantly lower, it will soon be optional to wear masks outdoors in Singapore while the maximum group size for social gatherings as well as dining in will double from 5 to 10. Certain large-scale social gatherings are also permitted to resume.

Office spaces are expected to be filled up again, as up to 75 per cent of those who can work from home are now allowed to return to their workplaces, up from 50 per cent previously.  
Cross-border travel is also expected to ease substantially from Apr 1, as travellers no longer have to take designated vaccinated travel lanes (VTL) to enter Singapore quarantine-free.  
Such moves will help to "reconnect Singapore with the world" and "give a much-needed boost to businesses, particularly the tourism sector, and help Singapore reclaim its position as a business and aviation hub" said Prime Minister Lee Hsien Loong during his speech.  
Following the announcement, the Straits Times Index (STI) gained 1.1 per cent during Thursday's (Mar 24) trading session, driven by a rally in aviation, transport, tourism and retail-related stocks.  
Similarly, S-Reits recorded gains, with the iEdge S-Reit Index increasing 1 per cent in the trading session, led by trusts with significant exposure to Singapore related retail, hospitality, and office assets.

Hospitality S-Reits gained 3.5 per cent while retail S-Reits gained 1.5 per cent. More notably, hospitality and retail S-Reits saw a surge in trading activities on Thursday with S$27.4 million and S$21.4 million in traded value respectively.

This represents over 211 per cent and 58 per cent increases respectively, against their 3-month average daily traded value.  
Diversified S-REITs also gained an average of 1.8 per cent over Thursday, led by trusts (Lendlease Global Commercial REIT, OUE Commercial REIT and Suntec REIT) with substantial exposure to the retail and office segments in Singapore.  
Lendlease Global Commercial Reit (LReit), which owns prime retail properties in Singapore and grade-A office buildings in Milan, was the top performer for the day with over 7 per cent gains.  
In February, LReit proposed to acquire the remaining interest in JEM mall for close to S$2 billion.  
LReit expects the acquisition to further boost the Reit's portfolio income diversification and provide approximately 10.5 per cent distribution per unit (DPU) accretion upon completion.  
Post-acquisition, LReit's exposure to the resilient suburban retail sector is expected to increase from 16.3 per cent to 46.8 per cent and its Singapore-centric asset base to be close to 88 per cent of its total portfolio value.  
CDL Hospitality Trusts (CDLHT), which owns hotel properties across Asia Pacific and Europe, rose 6 per cent over the trading day following the announcement of easing travel restrictions.  
CDLHT's Singapore portfolio (approximately 64.9 per cent by total portfolio valuation) continued to be impacted by the absence of major meetings, incentives, conferences, and exhibitions (MICE) events, large wedding banquets and social functions in FY 2021.

The trust remains optimistic in Singapore's commitment to reopening and returning to normalcy.  REIT Watch is a weekly column on The Business Times, read the original version.



REIT Watch - Retail, hotel, office S-Reits gain with relaxed Covid rules

Singapore

OUE Real Estate Investment Trust (“OUE REIT”) is one of the largest diversified Singapore REITs (“S-REITs”) with total assets of S$6.0 billion as at 31 December 2022. With seven properties across the commercial and hospitality segments in Singapore and Shanghai, the property portfolio comprises more than 2.1 million square feet of prime office and retail space, and 1,643 upper upscale hotel rooms.

OUE REIT invests in income-producing real estate used primarily for commercial purposes (including real estate used primarily for office and/or retail purposes) in financial and business hubs, hospitality and/or hospitality-related purposes, as well as real estate-related assets.

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OUE REIT (OUECT SP)

ASEAN Builder's Scoop (13May22) - LHN Co-Living Bearing Fruits

ECWREIT timing difference in compensation; OUECT recovery appears slow; UHU min leasing risk; FPL boosted invt props; SMPH reopening play for malls

SCCM Asia Research

ASEAN Builder's Scoop (10May22) - AREIT Buys 7 Logistics Props in Chicago at ~5.3% Yield

OUECT looking to buy AUS, London offices; Indo tourist arrivals gradual recovery; Marcos leading Phils election, YTL aims to grow REIT portfolio

SCCM Asia Research

MNACT's Scheme Meeting on 23 May, IFA Opinion

The IFA considers the scheme consideration to be fair. For a 17 August payment, the annualised spread of the cash-only consideration (including...

Arun George

(Non-SGX Report) OUE Commercial REIT - PRICE PERFORMANCE

Non- SGX Report: These equity research reports are not written by the SGX. SGX supports the distribution of the research reports by external...

Singapore Exchange Ltd (SGX)

REIT Watch - Retail, hotel, office S-Reits gain with relaxed Covid rules

Singapore announced the easing of Covid-19 measures on March 24 as the country takes a "decisive but measured step forward"...

Singapore Exchange Ltd (SGX)

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