OUE Commercial Real Estate Investment TR’s Latest Earnings: Better-Than-Expected Growth Across The Board

OUE Commercial Real Estate Investment TR (SGX: TS0U) released its results for the year ended 31 December 2014 yesterday.

The real estate investment trust (REIT) focuses on the ownership of commercial properties and currently has only two assets in its portfolio, namely OUE Bayfront in Singapore, and Lippo Plaza in Shanghai.

It has a total portfolio value of approximately S$1.63 billion (as at 31 December 2014) and is actually sponsored by OUE Ltd (SGX: LJ3). With these as a backdrop, let’s take a look at OUE Commercial REIT’s latest earnings release.

Financial hihglights

For the full year (which actually only encompassed the period from 27 January 2014 to 31 December 2014), gross revenue at S$71.5 million was 3.6% better than the REIT’s own forecast. OUE Commercial REIT was listed only in January 2014 and had given forecasts for its future financials in its prospectus.

The stronger top-line was due to better-than-expected occupancy and rental reversions seen at both the REIT’s assets.

Net property income also put on a good showing as it came in at S$53.8 million, 7% higher than forecasted, mainly because of “higher gross revenue achieved, augmented by lower utilities expenses incurred.”

Consequently, OUE Commercial REIT’s amount available for distribution also clocked in higher than predicted. The REIT’s forecast was for S$43.9 million, but the actual figure was 4.5% higher at S$45.9 million. The REIT’s actual distribution per unit (DPU) of 5.27 cents came in 4.4% better than the forecast as a result.

Balance sheet strength and operational highlights

As of 31 December 2014, OUE Commercial REIT’s gearing ratio was at 38.3%, an improvement from the figure of 39.8% seen three months ago.

73.6% of the REIT’s borrowings have fixed rates, which means that rising interest rates in the future will likely not severely hamper the distribution paying ability of the trust. At the end of September 2014, only 56.8% of the loans had fixed rates – this shows that the REIT’s Manager has been busy fortifying the REIT’s balance sheet lately.

It isn’t all good news however, as OUE Commercial REIT’s average cost of debt rose from 2.57% per year as at 30 September 2014 to 2.81% at the end of 2014.

The trust has no financing requirement till 2017, when 57% of its total borrowings of S$644 million would come due. Investors might want to keep an eye on the REIT’s balance sheet as we step closer to 2017.

On the operational front, a nice summary had been given by Tan Shu Lin, Chief Executive Officer of OUE Commercial REIT’s Manager:

We are pleased that OUE C-REIT has delivered yet another strong performance for 4Q 2014 and a solid set of results for FY2014. This reflects the Manager’s proactive asset management initiatives to drive operating performance at OUE Bayfront and Lippo Plaza. Portfolio occupancy rose to 98.0% as at 31 December 2014 from 97.2% a quarter ago, as Lippo Plaza improved its occupancy from 94.4% to 96.0% while OUE Bayfront maintained full occupancy.”

The increase in portfolio occupancy from an already strong base is something investors may be happy to note. Meanwhile, the REIT had also experienced positive rental reversions of 14.9% at OUE Bayfront and 6.0% at Lippo Plaza for the reporting period.

At OUE Commercial REIT’s close at S$0.815 per unit yesterday, it is trading at 0.7 times its latest book value of S$1.10. Its historical distribution yield stands at 6.5% (based on the DPU of 5.27 cents).

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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.