OUE Commercial Real Estate Investment Trust (SGX: TS0U) is a relatively new real estate investment trust in Singapore’s stock market given that it listed only in January 2014.
The REIT, which has a market capitalisation of S$791 million, has a focus on commercial properties (as its name might suggest) and currently holds three properties in its portfolio, namely, Lippo Plaza in Shanghai and OUE Bayfornt and One Raffles Place in Singapore.
OUE Commercial REIT had just released its results for the quarter and year ended 31 December 2015 this morning. So, let’s dive in and see how the REIT has performed.
Revenue and distribution
OUE Commercial REIT reported gross revenue of S$101 million for 2015, this was 41.2% higher than the S$71.5 million seen in S2014 (shortened ‘year’ running from 27 January 2014 to 31 December 2014). Net property income (NPI) for 2015 also showed a big jump of 40.5% to S$75.6 million as compared to S2014.
For the quarter ended 31 December 2015, the REIT’s gross revenue came in at S$40.3 million which was a massive 106% increase compared to the same quarter the year before. NPI for the quarter, like gross revenue, had leapt mightily by 107% to S$29.7 million.
The staggering increase in the OUE Commercial REIT’s revenue and NPI was due mainly to the acquisition of One Raffles Place on October 2015. On a like-for-like basis (after stripping away One Raffles Place’s contribution and annualising the numbers from S2014), the REIT’s growth in gross revenue and NPI for the whole of 2015 was a much tamer, though still healthy, 5.9% and 6.9%, respectively.
Coming to the bottom-line, more specifically, distributions, OUE Commercial REIT’s amount available for distribution in 2015 was S$56.1 million, up 22.2% when compared to S2014. Consequently, the distribution per unit (DPU) for 2015 came to 4.38 cents, a 20.7% increase versus the adjusted DPU (for a rights issue) of 3.63 cents seen in S2014.
If we do a like-for-like comparison (with the same conditions as the previous like-for-like case) on the REIT’s amount available for distribution for 2015, it would come up to S$51.2 million, some 3.6% higher than a year ago.
Balance sheet and financial strength
OUE Commercial REIT’s aggregate leverage had increased from 38.3% in 2014 to 40.1% in 2015. Meanwhile, the REIT’s cost of debt had increased from 2.81% to 3.45%, its average term of debt had decreased from 2.95 years to 2.31 years, the percentage of its loans with fixed interest rates had slid from 73.6% to 63.8%, and its interest cover had declined from 3.9 times to 3.7.
These changes on the capital front are a bit worrying as it appears that we are in an environment of rising interest rates. The bright spot regarding the balance sheet is that the REIT has no refinancing requirements for 2016.
OUE Commercial REIT ended 2015 with a net asset value (NAV) per unit of S$0.96, down from S$1.10 a year ago.
In the earnings release, OUE Commercial REIT commented that while low vacancies are expected to be seen in Singapore’s core CBD (Central Business District) market in the near-term, “completions of new office developments from 2H 2016 [second-half of 2016] is expected to impact vacancy and rents.”
As for the Shanghai office market, the REIT said that “in view of further new supply coming on-stream in 2016, the overall Shanghai vacancy rate in the coming quarters and hence the rental outlook is expected to be subdued.”
On a more positive note, the REIT has undertaken some asset enhancement initiatives [AEIs] for its property in China. The REIT aims to cause minimal disruptions to its tenants with the AEIs and the upgrades are expected to be completed in mid-2016.
At its current price of S$0.63, OUE Commercial REIT is priced at 0.66 times its latest book value.
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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 Esjay doesn't own shares in any companies mentioned.