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4 Things Investors Should Know About OUE Commercial Real Estate investment TR’s Latest Results

OUE Commercial Real Estate Investment TR (SGX: TS0U) owns two assets – OUE Bayfront in Singapore and Lippo Plaza in Shanghai – with a total asset value of approximately S$1.6 billion. Its sponsor is OUE Ltd (SGX: LJ3), which is also a sponsor of OUE Hospitality Trust (SGX: SK7).

The REIT, which went public in January this year, announced its third quarter results on Friday evening. Let’s take a look at three things investors should know about it.

1. Financial results beat forecast

For the quarter ended 30 September 2014, OUE Commercial REIT beat its own forecasts given in its listing prospectus for a number of its key financial figures such as gross revenue (1.8%), net property income (6.3%), distributable income (3.2%), and distribution per unit (2.9%).

Ms Tan Shu Lin, Chief Executive Officer of the REIT’s Manager, gave some quick comments on the quarterly results:

“We are pleased to announce yet another set of strong results, where DPU outperformed Forecast by 2.9%. This was mainly attributed to higher occupancy rates, continued positive rental reversions across the portfolio and proactive cost management.”

2. Strong occupancy

Portfolio occupancy was at 97.2%, as of 30 September 2014, compared to 96.8%, at the end of June this year. Exactly a year ago, the REITs portfolio occupancy came in at 92%, so that’s a nice improvement.

Overall occupancy for the latest quarter moved higher due to higher occupancy at Lippo Plaza, which increased from 93.6% a quarter ago to 94.4%. Meanwhile, OUE Bayfront has maintained full occupancy since the end of last December.

3. Grade A office rents set to rise further

CBRE, the world’s largest commercial real estate services firm, said Grade A office rents in Singapore had risen for four consecutive quarters to S$10.95 per square foot per month as of end September 2014.

OUE Bayfront is a Grade A office building located at Collyer Quay and it accounts for around 70% of the overall portfolio value of the REIT. Investors would be happy to note that Grade A office rents in Singapore seem to have legs to run given that there’s a limited supply of new office spaces in the Central Business District of Singapore. This is despite CBRE saying that office rents have gone up for four straight quarters. Higher rents will bode well for OUE Bayfront and for the REIT as a whole.

4. An increase in interest rates

But while it’s good to note that the REIT’s top-line growth looks promising given the potential increase in rental rates, investors might also want to note that the REIT’s “[a]verage cost of debt is expected to increase to 2.76% per annum.” For some perspective, the REIT’s average cost of debt (interest rates) were 2.57% as of 30 September 2014.

The REIT has no refinancing requirements until 2017, but investors might want to keep an eye on how the cost of debt for the REIT changes between now and then as that could be an indication of how expensive the REIT’s borrowings might be in the future.

OUE Commercial REIT closed at S$0.805 on Friday. At that price, it is valued at 0.8 times its latest book value of S$1.05 and has an annualised distribution yield of close to 7%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.