OUE Limited Diversified real-estate conglomerate September 7, 2021 1782

  • OUE owns, develops and manages commercial, hospitality, retail and residential assets. It also has interests in the consumer and healthcare sectors.
  • It is the sponsor of OUE C-REIT, which divested 50.0% of OUE Bayfront, OUE Tower and OUE Link in March 2021 at a 26.1% premium over purchase consideration.
  • Indirect associate acquired a 32% stake in Matahari, the largest departmental store in Indonesia. This brings OUE’s effective stake to 19% and expands its consumer segment which historically contributes 2% to topline.
  • When relaunched in 2022, OUE’s Mandarin Orchard Singapore is expected to become Hilton’s flagship hotel in Singapore and the largest Hilton hotel in the Asia Pacific.

 

Company background

OUE is a diversified owner, developer and operator of real estate in Asia. It manages  landmark assets in the commercial, hospitality, retail and residential sectors. It is also the sponsor of OUE Commercial Real Estate Investment Trust (OUECT SP, Not Rated). In 2017 and 2018, OUE expanded into the healthcare sector with the acquisition of OUE Lippo Healthcare Limited (IHC SP, Not Rated) and First REIT Management Limited (FIRT SP, Not Rated). In 2019, it entered the consumer sector with OUE Restaurants. Singapore is its largest revenue contributor, at 83% of FY20 revenue.

 

Highlights                                                           

  1. 50% divestment of OUE Bayfront, OUE Tower and OUE Link. On 31 March 2021, OUE C-REIT divested 50.0% of OUE Bayfront, OUE Tower and OUE Link to a 50:50 limited liability partnership between OUE C-REIT and Allianz Investor. Main reasons for the divestment were realising capital appreciation and the opportunity to optimise its capital structure and increase its financial flexibility. The deal was transacted at a 26.1% premium to its purchase consideration in 2014. Net proceeds of S$262.6mn were used to redeem convertible perpetual preferred units and pare down debt to optimise OUE C-REIT’s capital structure.

 

  1. Acquisition of Matahari for consumer expansion. On 15 July 2021, OUE’s indirect associate acquired 32% of PT Matahari Department Store Tbk. This brought OUE’s effective stake to 19.2%. Matahari is the largest departmental store in Indonesia. Prior to Covid-19, Matahari enjoyed healthy cash flows. Despite its market leadership with a unique portfolio of assets, its stock underperformed peers on a 5-year basis. With 147 outlets in Indonesia, the acquisition has extended OUE’s consumer division – which historically contributes 2% to its topline – to the growth market of Indonesia.

 

  1. Mandarin Orchard Singapore to become largest Hilton hotel in APAC in 2022. In March 2020, OUE rebranded Mandarin Orchard Singapore into Hilton Singapore Orchard. This is to leverage Hilton’s strong brand recognition, global sales and distribution network, and highly successful guest loyalty programme to pursue a higher-yielding market among corporate and leisure travellers. Upon its relaunch in 2022, Hilton Singapore Orchard will be Hilton’s flagship hotel in Singapore and the largest Hilton hotel in the Asia Pacific. The rebranding is expected to position the hotel for an anticipated sector recovery once travel restrictions are eased.

Revenue

 

OUE has three revenue sources: investment properties, development properties and hospitality. Before Covid, investment properties and hospitality were stable businesses, contributing about S$500mn to OUE’s toplines. The pandemic caused FY20 revenue from all the segments to fall YoY, with its hospitality, development-property and consumer divisions bearing the brunt. Revenue from hospitality declined 64.6% YoY as room occupancy and banquet sales plunged because of travel restrictions and Covid-19 measures. Development-property contributions fell 59.9% YoY, pertaining to the completion of certain OUE Twin Peaks units sold under deferred payment schemes. Revenue from its consumer division sank 50.8% YoY, following lower revenue from OUE Skyspace L.A., which ceased operations in March 2020.

 

Singapore remained OUE’s largest revenue contributor at 83% of its FY20 revenue. Investment properties formed 50% of the topline. Development properties formed 26%. Historically a large recurring contributor, hospitality revenue comprised 16%. Revenue from healthcare was 6% and consumer, 2%. OUE provided a total of $19.9mn of rental rebates and assistance to eligible tenants affected in FY20.

 

Topline weakness persisted in 1H21, with revenue down 50% YoY. Revenue from investment properties declined 24% YoY due to an absence of contributions from US Bank Tower and lower contributions from OUE Bayfront after their divestments in September 2020 and March 2021 respectively. Hospitality revenue fell 41%, reflecting a full half-year impact of travel restrictions and Covid-19 measures put in place by the Singapore government since March 2020. Revenue from development properties was only S$0.2mn, due to the absence of completion of OUE Twin Peaks units sold under its deferred payment scheme in 1H21. As Singaporeans are progressively vaccinated and Covid-19 measures ease, hospitality’s outlook should improve from 2H21.

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