OUE Commercial Real Estate Investment Trust’s Latest Earnings: What Investors Should Know

OUE Commercial Real Estate Investment Trust  (SGX: TS0U), or OUE C-REIT for short, had released its fiscal second-quarter earnings report yesterday evening. The reporting period was from 1 April 2015 to 30 June 2015.

OUE C-REIT is a real estate investment trust with a principal investment strategy of investing in commercial properties within and outside Singapore. Its current portfolio is made up of only two properties: OUE Bayfront in Singapore and Lippo Plaza in Shanghai.

Financial highlights

Here’s a quick rundown of the latest financial figures from OUE C-REIT:

  1. Gross revenue rose to $19.7 million in the reporting quarter, up 5.4% compared to the same quarter a year ago.
  2. Along with this, net property income (NPI) rose by 2.8% year-on-year. Quarterly NPI came in at $14.7 million, compared to $14.3 million a year ago.
  3. The slight increase in the REIT’s top-line flowed to its bottom-line. OUE C-REIT’s distribution per unit (DPU) for the quarter was 1.46 cents, a 2.1% increase from the figure of 1.43 cents seen in the corresponding quarter last year.
  4. The REIT’s investment properties are valued at $1.7 billion as of 30 June 2015. The REIT also ended the quarter with a net asset value per unit of $1.10, up 3.8% year-on-year. These figures will change once the REIT’s purchase of One Raffles Place, which was first announced on 10 June 2015, is completed.

Beyond these, Foolish investors might also want to keep an eye on the REIT’s debt profile. The debt profile may provide clues on how the REIT is funded and its sensitivity to the interest rate environment. These are summarised for OUE C-REIT below.

2015-08 OUE Commercial REIT Debt Table

Source: OUE C-REIT’s earnings presentation

The REIT has improved its financial health on a number of fronts compared to three months ago. As you can see, it has lowered its total debt and aggregate leverage, reduced its average cost of debt, and bumped up its interest service ratio. The only snag here is that its average term to maturity for its borrowings had declined a little.

OUE C-REIT also reported that 72.7% of its loans have fixed interest rates for the next 2.72 years; this should help provide some buffer for the REIT against any adverse impacts from rising interest rates over the near-term future. The REIT also does not have any refinancing obligations to worry about until 2017 when around $358 million in debt comes due.

Operational highlights

OUE C-REIT ended the quarter with an overall portfolio occupancy of 95.3%. While that’s a healthy rate, it’s also a stepdown from the occupancy level of 96.8% that was seen a year ago.

Meanwhile, the REIT also had a weighted average lease term to expiry (WALE) of about 2.7 years by nett lettable area and 3.0 years by gross rental income. These compare with a WALE of 3.1 years by both nett lettable area and gross rental income in the second-quarter of 2014.

Investors might also want to know that the REIT has managed to achieve positive rental reversions (including rent reviews) of 14.6% for OUE Bayfront and 12.9% for Lippo Plaza during the reporting quarter.

Elsewhere, the biggest news for the quarter has to be the REIT’s S$1.1 billion acquisition of an indirect interest in One Raffles Place, an integrated commercial development seated in the heart of Singapore’s central business district. The purchase will be financed through a combination of new debt, a rights issue (successfully completed in July), and the issue of convertible perpetual preferred units.

At the moment, it isn’t immediately clear on how the REIT’s DPU will benefit from the addition of One Raffles Place to its portfolio.

Tan Shu Lin, the chief executive of OUE C-REIT’s manager, had the following comments to share in the earnings release regarding the REIT’s reporting quarter:

“We are pleased to announce yet another strong set of operational results for OUE C-REIT, which is the sixth consecutive quarter of outperformance against Forecast since listing on 27 January 2014. Whilst portfolio committed occupancy eased from a high of 98.6% as at 31 March 2015 to 95.3% as at 30 June 2015, we continued to see uplift in rental rates for both new and renewal leases in the portfolio.

OUE Bayfront’s average passing office rent increased 4.2% from S$10.60 per square foot (“psf”) per month a quarter ago to S$11.04 psf per month for June 2015, while Lippo Plaza’s average passing office rent increased from RMB9.18 per square metre (“psm”) per day for March 2015 to RMB9.21 psm per day for June 2015.

On the inorganic growth front, we are extremely heartened that OUE C-REIT’s maiden acquisition of an indirect interest in One Raffles Place announced on 10 June 2015 had received strong endorsement from Unitholders at the Extraordinary General Meeting held on 27 July 2015. Similarly, the Rights Issue to part-finance the Acquisition was well-received and overwhelmingly supported by Unitholders.

We are now on track to strengthen OUE C-REIT’s competitive positioning in Singapore’s Central Business District, as well as enhance the diversity and resilience of its portfolio.”

Foolish summary

OUE C-REIT last traded at S$0.67 yesterday. At that price, the REIT’s valued at just 0.6 times its book value. We should keep our eyes on how the REIT’s DPU shapes up in the quarters to come.

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.