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OUE Commercial REIT Has A Yield Of 7.2% Right Now: 3 Things Investors Should Know

OUE Commercial REIT (SGX: TS0U) is a real estate investment trust that, as its name suggests, deals primarily with commercial properties.

The REIT’s current portfolio consists of only three buildings, namely, OUE Bayfront, a Grade A commercial building located at Collyer Quay; One Raffles Place, an integrated commercial development in Singapore’s Central Business District consisting of over two Grade A office towers and a retail mall; and Lippo Plaza, a Grade A commercial building located in the business district of Huangpu, Shanghai.

At the moment, OUE Commercial REIT has a distribution yield of 7.2%, which is over twice the market average. To the point, the SPDR STI ETF (SGX: ES3) has a yield of only 3.0%; the SPDR STI ETF is an exchange-traded fund that tracks Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI).

OUE Commercial REIT’s market-beating yield prompted me to take a deeper look at its business. Here are three things I found that could be of interest to investors:

1. Performance in the first nine months of 2016

The table below shows how OUE Commercial Trust’s gross revenue, net property income, distributable amounts, and distribution per unit (DPU) in the first nine months of 2016 have changed compared to a year ago:

OUE Commercial REIT income statement table
Source: OUE Commercial REIT 2016 third quarter earnings presentation

We can observe that all four metrics have seen strong growth. The improvements are driven by the acquisition of One Raffles Place in October 2015 and a better performance from OUE Bayfront and Lippo Plaza.

2. Changes in the occupancy rate

The following chart plots the occupancy rate for OUE Commercial REIT’s portfolio going back to the third quarter of 2013:

OUE Commercial REIT portfolio occupancy
Source: OUE Commercial REIT 2016 third quarter earnings presentation

What’s worth noting here is that the REIT’s overall occupancy rate is at the lower end of where it has been for the period under study.

OUE Commercial REIT’s occupancy rate trend is driven by Lippo Plaza and One Raffles Place. The latter has had an occupancy rate in the low-90% range since it was acquired. Meanwhile, the latter is fighting against an increase in supply in Shanghai’s Grade A office market.

3. Portfolio composition

Here’s a quick breakdown of OUE Commercial REIT’s portfolio in the third quarter of 2016 according to a few categories:

OUE Commercial REIT portfolio breakdown
Source: OUE Commercial REIT 2016 third quarter earnings presentation

Up to 80.8% of the REIT’s revenue currently comes from Singapore (via One Raffles Place and OUE Bayfront) while the rest come from China.

In terms of OUE Commercial REIT’s revenue-split by real estate sector, Office represents the bulk of revenue at 83.1%. The Retail sector takes up the rest.

We can also see that One Raffles Place is currently the most important building for OUE Commercial REIT – it makes up nearly half of the REIT’s total asset value. Meanwhile, OUE Bayfront and Lippo Plaza are at 37.2% and 15.9%, respectively.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.