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, released its fiscal third-quarter earnings report yesterday evening. The reporting period was from 1 July 2015 to 30 September 2015.

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

You can catch the REIT’s earnings from the previous quarter here.

Financial highlights

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

  1. Gross revenue rose to $20.6 million in the reporting quarter, up 5.7% compared to the same quarter a year ago.
  2. Along with the topline growth, net property income (NPI) rose by 4.7% year-on-year. Quarterly NPI came in at $15.6 million, compared to $14.9 million a year ago.
  3. OUE C-REIT’s distribution per unit (DPU) for the quarter was 1.02 cents, a 5.2% increase from the selfsame figure of 0.97 cents recorded in the corresponding quarter last year.
  4. Total assets under management is currently estimated to be at $3.4 billion. This is an increase from $1.65 billion seen at 30 September 2015Majority of the change comes from OUE C-REIT’s acquisition of an indirect majority interest in One Raffles Place on 8 October 2015. The REIT also ended the reporting quarter with a net asset value per unit of $0.92, down from $1.10 at the end of last year.

It is worth noting that OUE C-REIT’s income support had climbed from $1.6 million in the third-quarter of 2014 to $1.7 million in the reporting quarter. As my fellow Fool Chong Ser Jing had previously noted, this may be one metric worth keeping an eye on.

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

2015-11 OUE C-REIT Table

Source: OUE C-REIT’s earnings presentation

In its earnings release, OUE C-REIT provided a pro-forma view of how its debt profile looks after the completion of the One Raffles Place deal.

From the pro-forma figures, debt levels have more than doubled while aggregate leverage has increased to 40.9%. This number puts OUE C-REIT close to the MAS-proposed leverage limit of 45% for Singapore REITs.

Meanwhile, OUE C-REIT’s average cost of debt is expected to increase while the percentage of debt with fixed interest rates will fall from 100% as of 30 September 2015 to just 63.5% as of 8 October 2015. This leaves the REIT more exposed to interest rate changes that might occur in the future.

Operational highlights

OUE C-REIT ended the quarter with an overall portfolio occupancy of 97.1%. This is an improvement from the occupancy rate of 95.3% seen in the last quarter.

The REIT also had a weighted average lease term to expiry (WALE) of about 3.0 years by gross rental income.

Investors might also want to know that the REIT has managed to achieve positive rental reversions (including rent reviews) of 22.3% for OUE Bayfront and 7.7% for Lippo Plaza during the reporting quarter.

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 very pleased to report yet another robust set of results for OUE C-REIT, supported by strong operational performance. Portfolio committed occupancy increased to 97.1% as at 30 September 2015 from 95.3% as at 30 June 2015 due to improved office occupancy at both properties. Notably, Lippo Plaza achieved a 100% committed office occupancy, while committed office occupancy at OUE Bayfront rose to 97.4%. Office rental reversions continued to be positive during the quarter, with OUE Bayfront recording 22.3% uplift in renewed and reviewed office rents while Lippo Plaza saw a 7.7% increase.

Following the successful completion of the acquisition of an indirect interest in One Raffles Place on 8 October 2015, OUE C-REIT now holds an effective 67.95% interest in the property. Aside from strengthening our presence and competitive positioning in Singapore’s Central Business District, the addition of One Raffles Place enhances the diversity and resilience of OUE C-REIT’s portfolio.

Foolish summary

OUE C-REIT last traded at S$0.685 on Wednesday. At that price, the REIT is valued at 0.74 times its latest book value. We should keep our eyes out on how the REIT’s DPU shapes up in the quarters to come with the newly acquired One Raffles Quay.

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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.