OUE Commercial REIT’s Latest Earnings: What Investors Should Know

OUE Commercial REIT (SGX: TS0U), as the name suggests, is a commercial real estate investment trust (REIT) which owns OUE Bayfront and One Raffles Place in Singapore, and Lippo Plaza in Shanghai, China.

Yesterday, the REIT announced its financial results for the full year ended 31 December 2017. Here’s a quick rundown on the financial figures from the earnings release:

1) Revenue for the year fell 0.9% year-on-year to S$176.3 million on the back of lower one-off income.

2) Net property income (NPI) slipped 0.3% to S$138.2 million due to lower property operating expenses.

3) The amount available for distribution, however, increased from S$67.4 million to S$70 million, a rise of 3.8%. The growth was due to a) absence of performance fees; and b) higher income support.

4) Despite the improvement in the distributable amount, distribution per unit (DPU) was 4.67 cents, down from 5.18 cents seen a year ago. An enlarged unit base from an equity placement completed in March last year caused the fall in DPU.

5) The net asset value per unit came in at S$0.91, as at 31 December 2017.

The REIT’s manager said that all three properties did better than their respective office markets and recorded higher office occupancy during the year. This was despite the market office occupancy in both the central business districts of Singapore and Shanghai falling in 2017 as significant new office developments were completed during the year.  As at 31 December 2017, the REIT’s portfolio occupancy improved to 96.8% from 94.8% a year ago.

The top 10 tenants in the portfolio contributed around 27.5% of gross rental income, with the weighted average lease expiry by net lettable area at 3.6 years, as at the end of 2017. In 2018, on a portfolio basis, around 19.3% of gross rental income is due for renewal.

The balance sheet slightly weakened for the fourth quarter as compared to the third quarter. As at 31 December 2017, the trust had an aggregate leverage of 37.3% versus 36.9% seen end-September 2017. The weighted average cost of debt was stable at 3.5% per annum but the average term of debt slightly shortened to 2.7 years.

Looking ahead, the REIT had the following warning:

“OUE C-REIT’s rental income in 2018 may be impacted by the full-year impact of negative rental reversions of leases committed in 2017. Depending on the pace of recovery in spot rents in the Singapore CBD, negative rental reversions may potentially continue into 2018. However, this is mitigated as only 8.6% of OUE Bayfront’s gross rental income is due for renewal in 2018 and its rental revenue has downside protection from the income support arrangement which will expire only in 2019. At One Raffles Place, its 2018 revenue base would have improved due to the notable increase in committed office occupancy achieved in 2017, thereby mitigating potential negative reversions in 2018.”

OUE Commercial REIT is currently selling at S$0.75 per unit. This gives a historical price-to-book ratio of 0.82 and a trailing yield of 6.2%.

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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.